The prospective Labour government, under Rachel Reeves and Sir Keir Starmer, will have a tough hand to play. They are getting prepared for next year Budget 2025, which will be unveiled on Monday. The party leadership goes to war to retain discipline amongst their Members of Parliament (MPs). All the while, they’re braving the headwinds of exacerbating inflation and a more pessimistic economic forecast. The government’s time in office has been characterized by chaos, with key figures within the union expressing concerns that “growth’s gone as a priority.” Even the Labour party is finding it hard to deliver on its commitments. This economic uncertainty is complicating and exacerbating these challenges.
With inflation likely to come in even hotter than expected this year, the economic backdrop is a very difficult one to contend with. Brexit or no Brexit, economists expect those low growth rates to continue well into 2030, making it all the more difficult for Labour to fulfill their pre-election promises. The same party that used to pledge to support entrepreneurs and increase business profitability while generating more jobs appears to have given up. Those commitments have failed to come to fruition, leaving many stakeholders frustrated.
The Labour government’s budgetary decisions have recently been under fire, especially the coming increase in minimum wage and stack of new taxes. A prominent business leader remarked that these changes could significantly impact businesses, raising concerns about their sustainability in an already strained economic climate. More than one million people will become new income taxpayers. Millions more will face growing liabilities, pouring new fiscal pressures down on households already feeling the squeeze.
Rachel Reeves and Sir Keir Starmer’s relationship with the trade unions has soured amid disagreements over economic policies. This friction has resulted in a more challenging dynamic for the government, with one source from within the Labour movement arguing that recent decisions have created “unnecessary tension for Starmer and Reeves.” These competing pressures and the challenges of maintaining party unity are already starting to show themselves.
In light of these developments, Sir Keir Starmer plans to deliver a significant speech on Monday, advocating for the removal of the cap on benefits. He aims to address public concerns and potentially regain support from both party members and union leaders. The speech should focus on his vigorous intent to slash red tape. He has said that cutting back the planning system is absolutely critical to re-invigorating our economic growth.
Even in the middle of these conversations, there are party insiders who are still skeptical of the government’s fortunes. One insider noted, “The best-case scenario for the PM is that he gets to May, and then there is a failed challenge.” Lurking beneath this optimism lie some deep-seated frustrations within the party —the battle for the soul of the party—that could sink its chances long term.
Critics are lining up to blame the government’s fiscally irresponsible course. They make a specific charge against Rachel Reeves for misrepresenting the disastrous state of public finances. The Conservatives have accused her of misleading Canadians, charging that she “lied” on budget figures. These allegations create an atmosphere of distrust around Labour’s economic management.
Even with these hurdles, many business leaders are feeling a guarded sense of expectation that greater stability may be possible. One business leader stated, “Best-case scenario is this gives stability – the government can crack on, and we see an uptick in the economy.” This perspective suggests a desire for the government to successfully navigate its current difficulties while laying a foundation for future growth.
State budgets are booming, led by welfare expenditures. Opponents contend that this will shift the focus away from projects aimed at promoting long-term economic development. A senior business figure remarked on this trend, stating, “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.” Such comments point to growing fears over the sustainability of Labour’s fiscal policies and their longer term effects.
The strain between Labour’s new leadership and its historic union constituency is raw and real. The key is to weave labor interests into the overall economic picture. Finally, we need to make sure our welfare commitments are doing the opposite of discouraging business growth. Noted one key player in the negotiations with the automobile unions and businesses, “You can’t grid the negotiations.” Finally, they stressed the need for compromise to get things done.