The Labour Party’s first UK budget in more than 14 years was a tax-and-spend bonanza with huge new outlays on health, transport and education financed by extra borrowing and £40 billion of new taxes, the biggest fiscal expansion in more than 30 years.
Rachel Reeves, the first woman to be chancellor of the exchequer, announced a series of heavyweight measures in the House of Commons, a few of them to audible gasps. She justified the new Labour government’s muscular approach to tax and spending by saying it had fallen to her party to “once again rebuild Britain” and its public services after three terms of Conservative Party rule.
The outgoing Tory leader Rishi Sunak excoriated the new government’s tax and spending plans. He said he had warned all along during the summer election campaign that this is what Labour would do, but he wasn’t listened to: “I said that if you can name it, they will tax it.”
Ms Reeves insisted that her budget was built on the idea that Britain must “invest, invest, invest” to grow. However, the independent Office of Budget Responsibility (OBR) said the government’s new expansive approach would only boost growth to 2 per cent up to 2026, after which the accumulated effects of tax rises would actually depress growth rates. In March, under the Tories, the OBR had forecast growth in Britain’s economy of 1.8 per cent for 2027, but it cut that figure to 1.5 per cent after Ms Reeves’ first budget.
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The growth calculations by the OBR, which must give a health check to every budget under British law, are a blow to Ms Reeves’ vaunted ambition to spur major growth in the years ahead to pay for sustained investment in services.
Paul Johnson, the director of the Institute for Fiscal Studies, said the projected growth rates were “disappointing stuff”. He said it “looks like what is going on here is [that] short-term fiscal loosening is boosting growth immediately, but hindering growth later on”. Mr Johnson said the pace and scale of spending increases in health were “astounding. Can this scale of increase be spent well, that fast?”
Ms Reeves’ first budget was preceded by prime minister’s questions, as Mr Sunak, himself a former chancellor, faced the Labour front bench across the dais for the final time before his replacement as Tory leader is chosen on Saturday. It was a polite affair, as prime minister Keir Starmer thanked him for his “decency” before the afternoon’s real business – the budget – began.
The chancellor rose to her feet to a thunderous roar from the government benches. It was soon apparent that this, her first budget, would be a Labour Party landmark.
She insisted that her hand had been forced by £22 billion of unfunded spending plans the Tories had left behind, as well as the need to provide for £13.6 billion of compensation for separate infected blood and post office scandals.
Then she announced the £40 billion scale of her planned tax rises, higher than most analysts had predicted. A few MPs in the chamber whistled their surprise. Faced with the threats to funding of public services that she was, Ms Reeves said, “any responsible chancellor would take action”.
Annual day-to-day spending on health in England will rise by £22.6 billion within two years, while capital expenditure will go up by £3.1 billion – health is devolved in the other UK nations. Ms Reeves announced an extra £5 billion for housing, and £6.7 billion on new schools.
The spending is funded by measures including a £25 billion rise in employers’ national insurance and hikes in capital gains and inheritance taxes. The tax take is on course to hit a record 38 per cent of the economy. “I had to make choices,” said the chancellor.
