Tomorrow, the Chancellor will deliver the first Labour Budget since Alistair Darling did so in March 2010. She will also be the first female Chancellor to ever do so.
The Logistics of the Day
The Chancellor’s speech is scheduled to start at 12.30pm immediately after Prime Minister’s Questions. Unusually, it’s not the Shadow Chancellor that responds to the Budget but the leader of the Opposition. We won’t have a new Tory leader until next weekend and so this is likely to be ex-Chancellor Rishi Sunak’s last big parliamentary moment.
There will be a second big moment two hours later as the Office for Budget Responsibility (OBR), who have been pre-briefed, will hold a press conference to pass judgement on the facts and finances of the Budget. That will be available to watch live here.
One Day, Three Messages
The Budget is the government’s first genuine strategic pivot since the General Election. It is also a very difficult Budget to get right. The national debt, public demand, and voter cynicism are all high. Economic growth, productivity, and the Chancellor’s room for fiscal manoeuvrability are all low.
The Government will want their Budget to accelerate their belated October momentum which, from their vantage point, has seen them successfully land the Investment Summit, Industrial Strategy launch, and Employment Rights Bill. The Budget challenge is both economic and political. From a political communications perspective, they will want to land three key messages.
Firstly, that Labour has inherited a financial ‘black hole’, initially estimated at £22bn but recent briefing suggests a combination of tax increases and spending cuts totalling £40bn may be required. Whether it’s accurate to say that all of this was an unforeseen inheritance, their clear message is that from asylum to prisons to the NHS, the state of the public finances is dire.
This is a crucial framing for their second key message, which is that the Cabinet are focussed on taking ‘tough decisions’ to fix the foundations of the economy. Having previously been criticised for being too downbeat about the economy, the Prime Minister and his Chancellor will be keen to transition to their third message: that they are taking pragmatic decisions in the national interest that drive long-term growth and prosperity.
Revisiting the Rules
The most significant strategic decision that they appear to have taken is to revisit the Treasury’s fiscal rules. This feels like a big moment in British politics, and yet the rules are political constructs that have shaped orthodoxy for almost three decades. The Treasury’s fiscal rules were first introduced by Gordon Brown in 1997 and have been updated eight times since then. This IfG briefing on the rules has all the details.
By switching to a broader measure of the public balance sheet, so-called ‘Public Sector Net Financial Liabilities’ or PSNFL, Reeves has found headroom to borrow an additional £50bn a year by the end of the decade. However, she is highly unlikely to use all of this headroom. The Treasury have prepared the bond markets for an extra £80bn of borrowing over the next five years to fund infrastructure and green energy investment. This is less than the fresh headroom PSNFL provided and there’s the promise of greater oversight of how these loans are spent (including the new Office for Value for Money).
Explaining Tax Changes
Landing the ‘dire inheritance’ narrative may sound dispiriting but it is pivotal in winning public consent for any tax rises. The top line message is likely to be that the government are primarily asking businesses and ‘the better off’ to pay more, and are not creating any new taxes.
Tight departmental spending plans have caused Cabinet significant pain in recent weeks, some of which has spilled over into the media. The Chancellor will be hoping that despite politically difficult settlements her story of long-term investment will cut through.
Downing Street have returned to an Election Posture
The teams around the PM and Chancellor have returned to their ‘pre-election’ relationship, with daily calls and embedded working relationships. As such, this Budget also represents a significant organisational opportunity to demonstrate that the needless missteps of the summer won’t be repeated.
