Rachel Reeves will promise to tackle Britain’s cost-of-living crisis and bring fiscal stability in Wednesday’s Budget, which is being billed as a defining moment for the fate of Keir Starmer’s embattled government.
The Chancellor will say she is pursuing “fair and necessary options” to support the economy as she raises billions of pounds in taxes to help offset lower than expected growth forecasts.
But unease among Labor MPs over the government’s conduct ahead of the Budget – including trade-offs resulting from the decision not to press ahead with income tax rate increases – is leaving her party struggling to keep her on edge.
The government has been troubled by a series of damaging leaks and speculation, much of it fueled by ministers, as it attempts to lay the groundwork to avoid spooking markets and an even further slide in the polls.
Reeves is expected to announce a rise in the minimum wage, freeze rail fares for the first time for 30 years, cut the green charge on energy bills and scrap the controversial two-child benefits cap to help improve living standards.
But after abandoning plans for an income tax rise amid speculation over higher pay rises and Starmer’s future, he has been forced to abandon costly alternatives such as bringing in smaller, riskier tax rises and reversing a 5p cut in fuel duty to plug at least the £20bn gap.
Among nearly a dozen measures, the Chancellor is set to continue a freeze on the income tax cap introduced by Rishi Sunak for two more years, limit salary sacrifice schemes, bring in a gambling levy, pay per mile for electric vehicles and impose a wealth tax on high-value homes.
Despite pre-budget leaks, it is still unclear where billions of pounds worth of tax rises could fall, raising the possibility of announcements in the days after the budget that could further damage Labour’s standing with the markets and the public.
In his statement to MPs, Reeves is expected to say: “I will make the appropriate and necessary choices to deliver on my promise of change. I will not return Britain to austerity, nor will I lose control of public spending by borrowing recklessly.
“I will take action to help families with the cost of living… cut hospital waiting lists… cut the national debt. And I will lead the biggest campaign for growth in a generation.
“Invest in roads, rail and energy. Invest in housing, security and defence. Invest in education, skills and training. So together, we can build a fairer, stronger and more secure Britain.”
As part of the government’s ambition to improve living standards, millions of low-paid workers will get a 4.1% pay rise from April next year as minimum wage rates rise.
The “national living wage” for people over 21 will rise to £12.71 from April, which the government says will boost the annual earnings of around 2.4 million workers by £900.
The minimum wage for 18 to 20-year-olds will rise by 8.5% to £10.85 an hour, closing the gap with older workers as part of the Government’s commitment to “level up” pay for all workers.
Although he has insisted there will be no return to austerity, the Chancellor is also prepared to make deep departmental cuts until the end of the Parliament, with the Guardian believing it means areas such as local government, courts and border control could be affected.
Under current plans, departmental spending is set to increase by an average of 1% in 2029-30. But she is expected to cut that forecast to just 0.5% – a level that would require deep cuts in some non-protected areas.
After newsletter promotion
The move would cut £2.8 billion from spending plans, which government officials say can be delivered by taking action such as abolishing police and crime commissioners, ending asylum hotel accommodation, cracking down on benefit fraud and laying off thousands of civil servants.
However, economists warn that savings will be unsustainable and likely to be revised in future years.
Ben Zaranko, associate director of the Institute for Fiscal Studies, said: “If the Chancellor promises unspecified spending cuts at the end of Parliament in an election year, it is sure to raise questions among investors about the credibility and deliverability of the budget.”
Stuart Hoddinott, associate director of the Institute for Government, said: “If the government decides to make spending cuts in the final year of the forecast, it will have to make difficult decisions about how to allocate those cuts.
“But more likely, it is a return to the previous government’s approach: penciling in hypothetical spending numbers in the last year of the forecast to influence its fiscal rules before increasing them closer to the time.”
In other developments, Reeves is expected to move to scrap a multimillion-pound tax break for a mobility scheme that helps provide cars for disabled people, raising concerns among some Labor MPs.
The Treasury is reported to be considering scrapping up to £1bn of tax breaks, but is likely to announce a shorter version of the policy amid concerns among ministers that the sweeping scheme could lead to the collapse of mobility.
Ministers are also expected to confirm plans to encourage more drilling in the North Sea, including giving oil and gas companies incentives to drill in parts of the seabed that others have previously shunned.
The plans are likely to be controversial with green campaigners and Labor MPs, as the party went into the next election promising not to grant new licenses for North Sea oil and gas.
<a href