It’s the Shadow Chancellor Rachel Reeves’ big moment as she gives a significant speech at Downing Street later today. The entire nation is looking forward to the full-fledged Budget scheduled on November 26. Her address makes clear that she intends to push the plan further towards her vision for a budget focused on creating “fairness and opportunity.” It addresses the big priorities such as NHS waiting lists, the national debt, and the cost of living crisis.
In her speech, Reeves is expected to propose that increasing income tax could be the “best option” for raising an estimated £6 billion, all while protecting the majority of workers from any tax increase. Such a possible move has already begun to generate exciting debates among academic and political economists. It represents a historic turn in the government’s overall fiscal policy.
Reeves has set two overarching principles to govern state spending during her administration. She has, first of all, promised not to borrow to fund current public spending by the end of this parliamentary term. Her goal is to reduce the stock of government debt as a proportion of national income. She aims to do so by the end of the shorter time frame. These conditions highlight her desire to continue her reputation for fiscal prudence while still addressing current economic pressures.
This means that the Shadow Chancellor has signed tax increases and spending cuts on the dotted line. She wants to build “enough headroom to insulate us from future economic shocks.” The latest headroom is still a huge £9.9 billion. This figure hasn’t changed since her Autumn budget and from a historical perspective, is low.
The Resolution Foundation, one of the UK’s leading think tanks, has publicly called on Reeves to double that headroom to £20 billion. They cautioned that shifts in the economic landscape and possible policy reversals could diminish the existing £9.9 billion buffer into a fiscal deficit estimated at around £4 billion.
One of the suggested measures is to continue the freeze on personal tax thresholds for another 2 years past the currently planned end in April 2028. This extension alone would raise a fantastic £7.5 billion. The Resolution Foundation recently sounded the alarm. They claimed that not cutting VAT, National Insurance or income tax would do more economic harm.
Shadow Chancellor Sir Mel Stride said there were “worrying signs” in advance of Reeves’ announcements expected later this week. Following an “emergency press conference,” he remarked that she was “all but confirming what many feared – higher taxes are on the way.” Notably, many economists have begun advising Reeves that he’ll have to raise taxes. This sentiment will ring true as they work to find the right fiscal footing for our great nation.
As she prepares for her speech, Reeves emphasizes her commitment to making “the tough but fair decisions to renew our country and build it for the long term.” She’s made a big show of her insistence that her decisions will be driven by smart principles that help the most people across the country.
“You will all have heard a lot of speculation about the choices I will make. But it is important that people understand the circumstances we are facing, the principles guiding my choices – and why I believe they will be the right choices for the country.” – Rachel Reeves
Reeves intends to continue following her self-imposed “non-negotiable” financial guidelines. According to analysts, pursuing these strategies would lead to at least £20 billion of additional costs. Yesterday, the Treasury broke their silence in the face of relentless leaks and rumormongering about the Budget. At the very least they will need to wait until the Office for Budget Responsibility’s final forecast, due on November 26.
Prime Minister Sir Keir Starmer has already welcomed the concerns raised about fiscal stability. He warned that a thin financial cushion would increase the risk of failure. Yet, this could have Reeves playing catch-up with one gloomy prediction after the next.