Rachel Reeves will present budget to ‘repair and replace the foundations’ – but it will be a tough sell

The Labor manifesto never worked.

On the one hand, Keir Starmer While he promised “there will be no return to austerity” under his government, he also insisted he had “no plans” to increase taxes beyond an £8bn crackdown on private equity, oil and gas companies, private school fees and non-governmental organizations to buy more teachers and NHS appointments.

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In reality, whoever wins the election faces tens of billions of pounds of tough choices on tax and spending. But instead of aligning with us, the two main parties engaged in a “conspiracy of silence” to win votes.

Today will be a true day budget This will define Sir Keir Starmer’s first term in a way that was not in his manifesto.

There will be huge tax rises and changes to fiscal rules that will allow the chancellor to borrow more money to invest in Britain’s crumbling infrastructure.

As small and large businesses, property owners, shareholders and perhaps “middle England” prepare for tax rises, and the government braces itself, we will finally find out which “working people” Sir Keir Starmer wants to protect. for falling.

The Prime Minister told the Commonwealth Heads of Government summit in Samoa last week who was in the firing line for tax rises, telling me that “working people” are “those who go out and earn a living, and they are usually paid a wage.” some sort of monthly check,” but they didn’t have the ability to “write a check to get out of trouble.”

He told me clearly “Working people” who also owned assets such as property or shares did not fit his definition.

So business owners, property owners and Central England have some reason to be alarmed.

A pledge “not to increase national insurance, basic, higher or additional income tax rates or VAT” has been transformed in recent weeks into a promise to “protect workers’ payrolls”.

Employers are waiting for an improvement increase in national insurance premiums they must pay on wages – many will argue that this is a clear violation of the manifesto commitment.

In another blow to employers but a win for those struggling with low wages, Labor also announced a 6.7% increase in the National Living Wage for more than three million workers next year; This means a pay increase of £1,400 per year. an eligible full-time employee.

Is this the moment the manifesto is exposed as a sham? Labor insiders insist on this, pointing once again to the “£22bn black hole” they discovered in the current financial year when they took office, which has left a gap of up to £40bn in the public finances across parliament: they now have to plug it.

Politically, they hope to blame huge tax increases and borrowing on the economic legacy left to them by the Conservative Party and buy some ground from voters.

As one senior government official told me: “The size of the economic legacy is larger than thought and has created a political and economic vacuum in our first few months.”

This will be a message Rachel Reeves will want to leave in her mailbox on Wednesday.

But a public disillusioned with politicians may not see it that way as they watch the Labor Chancellor, sided with a prime minister who promised the exact opposite in the election, embark on a massive tax hike that they were told months ago would not come. down the tracks.

Insiders accept this will be a tax and spending budget that goes far beyond what we were told when Labor was asking for votes.

But they hope what they can do at this big moment is to move beyond winners and losers and frame Labour’s first budget in more than 14 years as “creating a new deal” for people and country.

To this end, there will be a “fundamentals repair and change” budget: “This is a new economic agreement by a government that is willing to invest and especially to borrow for investment, and this is a change and will show a path towards long-term growth.”

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Because as we investigate who is an employee and who will be affected by tax increases in this budget, a big story will emerge about the billions of investments made in our country’s energy and transportation infrastructure, housing and hospitals. schools.

A senior figure explains: “If we can get it right on budget evening, we want to show that we are protecting your payroll, fixing the NHS and investing to rebuild Britain.” “What is the alternative? The choice will feature very heavily in the Chancellor’s speech. We have made our choices and we are asking business and the richest to pay a little more to grow our economy and protect working people.”

And this new settlement will be huge when it lands. Rachel Reeves plans to change borrowing rules to allow up to £53bn more borrowing to be spent on public services and infrastructure.

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Following the decision at last week’s International Monetary Fund summit in Washington, the chancellor said he was making the change to seize opportunities for the economy “in industries from life sciences to carbon capture, storage and clean energy, artificial intelligence and technology”. as well as using borrowing to “repair our crumbling schools and hospitals.”

The danger for the chancellor is that what actually comes out from the other side is anger at tax rises not marked in the manifesto, or accusations that the government is facing a Janus if it claims, as speculation has it, to protect working people. A freeze on income tax thresholds beyond the 2028 deadline set by the last government, which will push millions of workers into higher tax bands (and raise as much as £7bn a year for the government).

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How might middle classes and wealthier voters respond to shrinking incomes? So how can businesses react when a government that has advocated pro-business for months is asked to pay billions of dollars more in taxes?

It will undoubtedly be a tough sell. But this government calculates that if Reeves can achieve this and spark economic growth, short-term pain will turn into medium- and long-term gains.

Our hope is that the next Labor manifesto will come and deliver on promises about the NHS, the economy, better housing and jobs, and that people will be able to forgive the tax increases they were forced to get there.

Starmer has talked constantly about this being an election for change, and it will be this budget, not his manifesto, that will prove the point.

(c) Sky News 2024: Rachel Reeves will present budget to ‘repair and replace the foundations’ – but it will be difficult