As difficult as it is to describe the frenzy that gripped Whitehall on Wednesday evening, as officials and ministers began to realize the potential economic pain that could be inflicted on their departments in just a few days, it has not deterred some involved to try it. . “A shambles,” was the assessment of one Labor figure. Another chose ‘chaos’. A third was even bolder: ‘Carnage’.
For a few incendiary hours that evening, angry and disbelieving messages flew through Westminster as ministerial teams responded to demands from the Treasury – namely to find significant savings in their departments by the end of the day. The whining led to direct appeals to Keir Starmer, which were quickly rejected.
Cooler heads argued that the wave of concern was unnecessary. The Treasury’s demands for major departmental cuts are just part of the standard pre-budget choreography that almost always results in a workable compromise.
But several departments have postponed negotiations until Friday evening. Some insiders – already on edge after the government’s rocky start – fear more mistakes will be made.
“Health is probably about good, but I’m not sure about anyone else,” said a concerned figure. “There are concerns across the board about what we are being asked to do.”
Some Labor figures were so alarmed by the response that they thought resignations might follow. Ultimately, much of the evening’s heat quickly dissipated, with Treasury sources claiming that spending review discussions had actually concluded earlier than in some previous years.
However, the skirmish is already seen by many as the moment when some of the young Labor government realized how difficult this early phase of government will be.
The scale of the task is reflected in the scope and scale of potential tax increases mooted in recent days, as Chancellor Rachel Reeves and her team look to secure the £40 billion needed for the fiscal “reset” she wants. The list is enormous, from inheritance tax loopholes to higher tax on pension contributions and to higher capital gains tax on shares.
But the potential tax raids of most concern are those that threaten Labour’s election promise not to increase VAT, income tax and national insurance. The biggest ticket item appears to be an increase in employers’ national insurance contributions, raising anywhere between £9 billion and £18 billion, depending on the exact measure Reeves favors.
While Labor insiders say this meets its pledge not to increase national insurance for ‘working people’, Conservative claims of betrayal will become increasingly furious. Similar dangers lie in a continuation of the freeze on income tax thresholds, which will effectively increase income taxes, although overall rates will remain intact.
As if the dynamics of such a seismic budget weren’t difficult enough to manage, both Starmer and Reeves have to think about it from outside the country this week as they find themselves on ill-timed trips.
Starmer is in Samoa to attend the Commonwealth summit, while Reeves is heading to Washington for meetings at the International Monetary Fund. The Prime Minister’s Questions will be in the hands of Angela Rayner, Secretary of State for Housing, Communities and Local Government who is also Deputy Prime Minister and is considered one of those most fiercely fighting for their corner when it comes to social housing funding and the local government. finance.
For some, the run-up to this government-determining budget has been chaotic. “It’s a mess,” said one Labor veteran. “The way they’ve been spraying around things and running things hasn’t been good. It’s as if there is a lack of strategic control over the entire process. And decisions seem to have changed at the last minute.”
However, others believe Reeves played a smart game. The fact that potential tax increases are made public ensures that they do not come as a surprise, while signaling to markets that additional spending is being extracted from taxes in a cautious manner.
Reeves and her team now turn their attention to the big political question: How can she sell a budget that contains so much apparent pain? The Observer understands she is considering a clear message focusing on the big increase in national insurance for employers, arguing that businesses should help get the NHS back on its feet.
It will take some political dexterity to pass the budget without falling into one of the numerous pitfalls. Government figures do not shy away from its historical significance, juxtaposing it with Norman Lamont’s 1993 tax budget in the wake of Black Wednesday, or George Osborne’s in 2010, which raised VAT and paved the way for austerity.
Even as Reeves avoids the many elephant traps in the immediate aftermath of the budget, government insiders have already spied the next one.
The long wait between the election and the budget has fueled some of the frustrations of Labour’s first 100 days. But after Reeves’ statement, ministers will have to wait months before they can paint a more positive picture of their plans.
The multi-year spending review, which includes next year’s programs, will not take place until the spring.
“It takes so long for expenditure to be reviewed,” an official said. “Then we can really get to work and do things. We are confronted with the same problem again. We haven’t been good enough at telling our story.”
How those intervening months will be filled will depend almost entirely on how well Reeves’ package holds up through a week on Wednesday.
But there is one area that is already causing acute nervousness among Labor ranks: the welfare state. Reeves has always made it clear that ominous “tough choices” will have to be made.
For example, she is expected to seek cuts to health-related benefits of up to £1.3 billion a year by the end of parliament. It is the same amount earmarked by the last Tory government, although Labor will review the methods used to achieve that target.
The consequences could be serious, as could the concerns of Labor MPs.
“It would be quite devastating in terms of the position of disabled people in difficulty,” said Iain Porter, senior policy adviser at the Joseph Rowntree Foundation. “Many people in this group already have to go to food banks or go without essential necessities, without heating.”
Some in the government are urging their colleagues to look beyond both the immediate budget problems and next spring’s more hopeful spending review.
For them, the fate of the party depends on looking to some point in the more distant future – most likely the spring of 2029.
Only then will Starmer and Reeves be held accountable to the electorate. According to them, that will also be the moment when the real judgment on this month’s budget madness will be made.