On Saturday, Keir Starmer and his government had already been in power for 100 difficult days. Far-right riots, arguments between top officials in Number 10, furor over free gifts in a government that claims to be at the service of the nation. Starmer now refers to them as “choppy days”, and the last two as “sidewinds” that he believes will not push him off course.
For Cabinet ministers in the major spending departments, there has been renewed frustration since they celebrated winning a landslide on July 4. We are waiting for the budget. New governments – Labor in 1997 and the Tory/Lib-Dem coalition in 2010 – tended to adopt their first budgets very quickly to provide direction and achieve a clear goal.
This Labor government’s first budget will not be released until almost four months after it takes office, on October 30. Under the fiscal transparency system that Labor decided to bring in to rebuild confidence after Liz Truss, the Office for Budget Responsibility had to be given time to look at the figures, make forecasts and check that everything was correct. All this time, ambitious members of the cabinet have been pulling their hair out.
Reeves, they say, locked herself in the Treasury, worrying about what to do. “We can’t get near her,” said a cabinet colleague. “We can’t get past Darren,” they said, referring to Treasury Department Principal Secretary Darren Jones, Reeves’ second and effective gatekeeper.
Amid the growing unrest and, some say, the lack of a clear sense of direction, ministers are eager to make announcements or at least put forward ideas. But without knowing whether they will get money for this, either in the budget or in next spring’s spending review, this has not been possible. “We are all quite limited. It has been a problem,” said one.
When Reeves delivers the first budget from a female chancellor in this country’s history, it will be a big moment in other ways, too.
No new resident of the post could ever have faced so many competing challenges. One of these – in particular the £22 billion black hole in the public finances that she inherited – can rightly be attributed to fourteen years of Tory rule. Others, more strategic and tactical, are from Labor itself. They’ve boxed themselves in.
To convince voters that it would be fiscally responsible, Labor promised before the election to be bound by strict budget rules, both on spending and future investment.
The party promised not to increase taxes on working people and therefore ruled out an increase in income tax, VAT or national insurance. It also boldly promised to stimulate new growth and create the fastest growing economy in the G7.
The promises didn’t stop there. Since the election, Starmer has said time and time again that there will be no return to Tory austerity and no widespread cuts to public services.
Now we are just seventeen days away from starting to deliver growth and restore public services without raising taxes on working people.
A former Tory Cabinet minister put it this way: “They have said they will not return to austerity and that they will rebuild services without raising taxes on working people, but that they will get the money from somewhere.” have to get.
“These are large amounts. The Institute for Fiscal Studies says they need to collect £25 billion in taxes. But if they want to achieve that and keep their promises, all choices will become very difficult.
“They have made it much more difficult for themselves because they have ruled out levying income tax, VAT or increasing workers’ national insurance. Together that is about 75% of all turnover.”
He added: “They mixed it up a bit in the run-up to the election and said it would all come from economic growth, but that was never really sustainable because you can never rely on growth.”
So where will Reeves go to raise the money with the government’s credibility on the line?
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For starters, she is widely expected to change fiscal rules to allow more long-term borrowing for investments. Some believe that this could worry financial markets unless it is made clear that these loans would be strictly limited.
The expectation in Whitehall is that Reeves will raise many billions by increasing employers’ national insurance contributions, after Starmer refused to rule this out when asked by the Prime Minister on Wednesday.
Challenged by Rishi Sunak, Starmer deviated: “We have made an absolute commitment to not increasing taxes on working people,” he said, without saying whether Reeves could instead sting employers.
It is also believed that the Treasury is planning to rake in further billions by increasing NI pension contributions for employers, which a Whitehall source said would be a “double whammy for businesses”. At the same time, key capital gains tax rates are expected to be increased by several percentage points. Finally, the Treasury could try to raise some extra revenue by raising inheritance taxes, perhaps ending the system that allows pension pots to be passed down from generation to generation without being taxed.
Related: Labor MPs are urging Reeves to spend tens of billions more on ailing public services
Another government source added that none of this looked particularly coherent, just as the government prepares to host an investment summit in London on Monday for global business leaders: “The problem is that we now seem ready to to pan things when we do. trying to get growth going. The real impact of NI increases hitting businesses will turn out to be on the working population. As a result, they will receive a smaller pay increase. The other shakeout will be job losses.”
A former Treasury insider said this government was struggling not only with the mess left by the Tories, but also with their own lack of planning. “My feeling is that they actually didn’t have much of a plan to get into government, partly because they thought it would be better to do that once they were in power, with the help of civil servants.
“In 1997 and 2010 the plans were much further advanced. This couple has a lot of catching up to do. They need a reset and a relaunch, a complete change of gear. The obvious time to do that is the budget. But there is no easy way. You can’t raise these amounts without some big fights,” said the former insider.