Just last week, Rachel Reeves, the Shadow Chancellor, posed outside Number 11 Downing Street with the famous red ministerial budget box. She delivered, ascribed by most as widely as expected, the Budget for 2025. This budget is expected to set the tone for Labour’s economic strategy, but it has already ignited fierce debate among political leaders, business executives, and economists.
The Budget is missing a clearer roadmap to future prosperity, more fiscal stability amid a chaotic global and national economic landscape. A business leader expressed optimism, stating, “Best-case scenario is this gives stability – the government can crack on, and we see an uptick in the economy. It’s not like other governments globally are smashing it.” The specter of slow growth projections hangs over all that. Forecasts suggest that the UK economy will stagnate for years to come. Supply growth is projected to remain weak through at least 2030.
Massive increases in state spending, including on welfare programs, are baked into the Budget. More than a million of those people will pay more in income tax—or start paying it for the first time ever. Conservative party critics have returned fire against Reeves. Just before the Budget, they personally attacked her by claiming that she was “lying” about the state of the government’s finances. According to them, her dramatic depiction of fiscal crises has been alarmist.
Allegations of bad faith have made Labour’s task even more difficult. It’s just a ludicrous thing to have backtracked on – it was the most obvious manifesto pledge. It’s really not that difficult, one senior Labour movement player told us. This backdrop has muddied the Labour-trade union relationship considerably and produced avoidable tension for Starmer and Reeves, especially with the potential to look bad if things go awry following the local elections. Internal friction poses an even greater challenge for Keir Starmer. He seems to be getting ready to do just that in his speech.
It is a safe bet that Starmer will promise much more economic growth in next week’s keynote. His intention is to reduce unnecessary red tape and accelerate the planning system. This indicates that Labour remains serious about forging a climate conducive to business, despite all of the recent turbulence.
Some observers are doubtful that Reeves’ outreach to the business community will prove successful before the election. A city insider remarked, “All of the pre-election talk about being the party of business and growth was bullshit. Everyone recognizes that now and they won’t forget.” This sentiment reflects broader concerns about Labour’s ability to effectively engage with businesses while maintaining strong ties with trade unions.
The federal government also borrows huge sums, so investor reactions are indeed a matter of national importance. A company boss worth billions acknowledged this by stating, “Twenty-six billion of extra tax is not normal, but I think the Budget will settle things down. We all love to criticize but maybe it is time to cut them some slack.” His remarks illustrate the tricky tightrope walk in front of Labour as they try to calibrate what will resonate with the public while still looking fiscally responsible.
Discussions about increasing the minimum wage and raising taxes to pay for services show even more burdens for Labour’s pro-growth agenda to carry. A senior business figure commented, “I think we are bit screwed aren’t we – by end of the decade we are going to spend nearly 400 billion on pensions and welfare – growth is clearly not at the top of the list.” This view highlights the big worry that putting welfare spending first will take focus away from efforts to promote economic growth.
Internal party dynamics are under scrutiny. The partial climbdown by Angela Rayner regarding certain policies may not lead to significant fallout, but there is an acknowledgment that Labour’s unity is crucial moving forward. “In terms of managing your party, why do it this week? You’d calmed everybody down, bond yields happy, Labour backbenchers happy, then you throw it all up in the air again!” remarked a senior Labour figure.
As Labour continues to navigate these tricky circumstances, government sources suggest that a turning of the tide is in the works. “There’ll be a body language change and we are going to enjoy the fight,” stated a government source, indicating an anticipation of heightened tensions as the political landscape evolves.