Perhaps the most important long-term change announced in the first Labour budget are the new rules the government has set itself to fund the expansion of public services and increase public investment. These fiscal rules, which set out how much the government can borrow and spend, are seen as critical to reassuring the markets and the public that the government is sensibly managing the economy.
Labour has long claimed that former prime minister Liz Truss casting aside the rules to introduce unfunded tax cuts in 2022 wrecked the British economy and left families worse off with higher mortgage and borrowing costs. Chancellor Rachel Reeves came into office determined to show that Labour would be fiscally responsible.
The government says this budget will make working families better off. In its own analysis, it shows that only the top 10% of the income distribution are made worse off (by 1%) by the plans. The poorest households gain the most (by 5%). However, this analysis counts benefits from the big increase in public spending on areas like health and education, which tend to be used more (relative to their income) by poorer households.
