New Chancellor Rachel Reeves to make keynote speech at Downing Street later today. This speech is extremely significant, having been released just days before the much awaited Budget (November 26). We’re looking for the next Budget to address mission critical issues such as NHS waiting lists, our national debt and the cost of living crisis. It does so by making fairness and opportunity the guiding principles of the program.
In her speech, Reeves is likely to outline her case for raising income tax as the preferred method of raising an estimated £6 billion. She’s counting on this phased-in approach to keep the majority of workers from feeling the impact of the tax increase. This thoughtful proposal goes in line with her larger approach to get the federal government’s financial books in order—without putting critical public services at risk.
Reeves has gone on record indicating that she is open to both tax hikes and budget reductions. Her aim is to preserve “adequate buffers” to protect the economy from potential future crises. Her fiscal approach includes two non-negotiable rules: first, not borrowing to fund day-to-day public spending by the end of this parliament; and second, ensuring that government debt falls as a share of national income by the same deadline.
The Resolution Foundation has called on Reeves to increase her fiscal rule headroom – currently set at £10 billion – to £20 billion. Currently, her headroom is at £9.9 billion, the same as her Autumn budget, and is considered low by historical standards. As foundation analysts have reported, the changes to the economy in recent years have been profound and alarming. They ominously predict that if current policy were to be reversed there’d be a fiscal gap of about £4 billion.
Reeves would gain an even smarter fiscal move by continuing her two-year freeze on raising personal tax thresholds past their April 2028 state. This is welcome—though it will only raise about £7.5 billion. The Resolution Foundation has cautioned that avoiding cuts to VAT, National Insurance, or income tax “would do more harm than good,” suggesting that tougher decisions may be necessary.
Sir Mel Stride, a prominent figure in the opposition, commented on Reeves’ statements by suggesting that she is “all but confirming what many feared – higher taxes are on the way.” This feeling is indicative of the increasing fear about rising taxes as government continues to struggle paying its bills.
Reeves’ very first speech is likely to focus on similar themes as those articulated by Prime Minister Sir Keir Starmer at a recent parliamentary party meeting with Labour MPs. He asserted that a consolidated front within the party on fiscal issues was vital.
So far, the Treasury has been silent on these, mostly speculative, Budget headlines. At the same time, the Office for Budget Responsibility (OBR) is due to publish its final forecast on November 26th, just as Reeves is due to announce the Budget itself. This forecast is set to be used as the main anchor of the government’s fiscal stance in the future, including next year’s Budget.
Through her pending action speech, Reeves will seek to underscore the need for transparency around her forthcoming decisions. She said, “You will all have heard much breathless speculation about the decisions I am about to make. It’s incredibly important for folks to understand the situation we find ourselves in. More importantly, I’d like them to understand the principles that are guiding my choices and why I believe those choices are right for the country.
As she prepares for this significant address, Reeves aims to present “a Labour Budget built on Labour values,” focusing on making “the tough but fair decisions to renew our country and build it for the long term.” Political analysts and average citizens alike will be watching closely to see what her pledges speech might mean going forward. They’ll be watching her forthcoming Budget announcement with added scrutiny too.