On October 30, Rachel Reeves presented the first Labour budget since March 2010. Laying out the government’s plans for the economy and public finances, the Chancellor outlined major changes to taxation, spending and borrowing. In this article, our writers give their reactions to one of the most significant and anticipated budgets in the UK’s political history.
Reeves’ gamble for growth: economic analysis by Will Knight
Budgets are always big moments for the government, and a Chancellor’s first budget is perhaps their biggest chance to shape the UK’s economic and political landscape. However, it is not an understatement to suggest that this budget marks the most significant shift in the state’s approach to public finances since George Osborne’s post-2008 austerity.
First and foremost, the raw size of the state has grown. At the beginning of her statement, Rachel Reeves announced a substantial tax increase of £40 billion, seeking to fill the “£22 billion black hole” in government finances. This will be primarily raised through an 1.2% uplift in employer National Insurance (NI) contributions.
Furthermore, expenditure has risen dramatically, with public spending predicted to rise an average 2.2% of GDP each year until 2025/2026. Most of this will go towards public services, increasing the Department of Health and Social Care funding by £22.6 billion for day-to-day spending, and £3.1 billion for investment. Meanwhile, education spending is set to receive a desperately-needed boost of £6.7 billion in capital spending, a 19% real-terms increase, alongside increased expenditure on special needs and hiring teachers.
However, perhaps the most significant part of the budget is the changes to public investment. By changing the definition of debt to include assets owned by the government, such as the value of repayments on loans, Reeves has freed up large amounts of funding for long-term investment. A similar change has been argued for by a number of economists, including Mark Carney – the former head of the Bank of England – as it incentivises borrowing for investment rather than day-to-day spending.
Most importantly, this has allowed the Chancellor to achieve debt targets, while investing billions into the economy. However, I would argue that Reeves could have gone further by moving towards a “public sector net worth” system where the value of physical assets are also accounted for. This strategy would allow for broader investment without damaging confidence in public finances. To treat debt for long-term investment as the same as short-run investment would be like treating borrowing to pay for pints as the same as having a mortgage.
Overall, the Budget is a big gamble for the government. Whilst the NI hike may not directly impact households, it is widely perceived that it will lead businesses to hold off on pay rises, something Reeves somewhat accepted. It is likely that she will hope that this indirect impact will not be noticed by voters, and that NHS and education spending will provide a political bounce.
I would suggest this is a wise move; there is a desperate need for investment in public services, and with five years until the next election, now is the time where political flexibility remains to raise NI. Furthermore, I would note that economic conditions may limit the transference of this tax rise onto workers; low unemployment means employers may hesitate on holding off pay rises for fear of losing scarce workers.
However, though the political calculus makes sense, wider reform is needed. Tax in the UK is both incoherent and old-fashioned, made up of a mess of individual policies rather than a unified system. For example, the division of NI from income tax leads to an bias towards asset incomes, while council tax and stamp duty represent an outdated approach to property taxation.
More broadly, Keir Starmer’s government is hoping that, as a bigger state, investing in the long-run will deliver economic growth. This approach would allow greater expenditures without necessitating further tax increases, while delivering on one of Starmer’s key promises of growth – his “number one priority”.
However, the Office for Budget Responsibility have also estimated that growth over the next five years will be well below target, meaning a boost is desperately needed.
Overall, I see a glimmer of hope for the British economy. While tax rises will certainly limit growth somewhat, and investment success is dependent on how well cash is spent, the budget illustrates a new, long-term approach to economic policy. If it is a success, the question still remains whether Labour will be in power to see it.
Is the budget fit for purpose? Political analysis by Adam Harvey
After fourteen years of sleaze, squabbling, and strikes due to public service neglect, the chancellor had some difficult decisions to make. For me, a student and long-term user of the NHS, relying on its mental health services, the issue isn’t necessarily how the government gets its money, it’s what the government does with it. Increases to Capital Gains Tax, employers national insurance contributions, and the minimum wage are a welcome sight. However there are a few worrying additions.
The hike of the capped-bus-fare from £2 to £3 for a single journey represents a real threat to rural communities, where buses were few and far-between. The government must now spend that extra money on encouraging local authorities to franchise bus services and stop bus companies taking advantage of its rural users. If the public have to pay more, they deserve more.
An increase in air-passenger-duty (the small fee anyone pays upon departing on a flight from the UK) was also announced. However, this will only be worthwhile if trains immediately become more reliable, cheaper and faster. Investments in train services which cross the Pennines are a step in the right direction, but the government must remember trains are public transport, not profit makers. Even government-owned operators like Northern have had their fair share of troubles, with legal issues over unfair prosecution of its passengers over fare disputes, and the Mayor of Greater Manchester, our very own Andy Burnham, calling the service “embarrassing”.
‘What about us?’: the question on every student’s lips. There was only £300 million allocated for further education – just over £1 million per institution – which may be fine for universities with surpluses like Manchester, but many universities will struggle, and so will their students. Also, fees rising by £300 a year will not be a popular move but is probably the right thing to do. What isn’t the right thing to do is only increasing maintenance loans by 3.1%.
However, is the government being unfairly criticised? Across 105 universities, on top of the recently reported expenses scandal, over 10,000 university staff received over £100,000 in pay in 2023-24. Of these, at least 2,700 received over £150,000 in additional expense remuneration.
That issue is the same for many industries receiving money from the public purse; it is clear the government needs to regulate further. It is not fair that senior staff receive excessive expense recuperations on top of extremely high salaries when there are full-time students whose hunger, poverty, and struggles persist off-campus, and not just on it.
The issue of student NHS staff being overworked whilst unpaid on placement is still unaddressed. It also provides a fairly obvious answer to the question: “why is the NHS in a staffing crisis?”. There is no point in spending so much money building new hospitals if people are discouraged from studying for these jobs in the first place.
The funding behind mental health services also needs urgent clarification, and the government must invest more money in local community services. Whilst I admire the intentions behind many of the government’s moves to “get Britain working”, they often fail to address the root causes behind why so many people are out of work, and mentally unwell. An increase in 45-minute therapy appointments is simply not enough for the vast majority, if at all anyone.
There are too many low paid jobs, and too many discrepancies in pay equality in the private sector, as well as a dwindling public morale. Whilst the (eventual) move to a single adult pay rate, and lift to £10 for under 21’s is welcome, the government can’t rely on ‘being fiscally responsible’ as an eternally lasting defence to the rise of populism. Societal issues will need to be addressed at some point if Starmer wants to stay in power, and the longer this is delayed, the more expensive of a task it will be.
And what about spending the money we do earn? As students, the hospitality sector is both a vital source of employment and enjoyment. The continuation of business rate reductions will be welcomed – despite falling from 75% to 40% – and the draught duty reduction on beer will be a sigh of relief for some pubs. But, this is not the VAT reduction on food and drink that venues across the country wanted.
A differentiation between big-chain-operations and independent spaces is vitally needed, especially for grassroots cultural venues. After all, local businesses like HandleBar and FUEL are much more vulnerable than the Grand Central Wetherspoons.
The government need to make radical reforms for the British public to notice small changes. Raising revenue for the country is all well and good, but people will still be stuck in the monopoly of rental hell, struggling to pay the bills or afford nutritious food. They will also be struggling to cope with a mental health system currently unfit for purpose, struggling to notice any real difference despite the change in government. Trying to appease everyone in the name of “encouraging investment and attracting business” will merely allow populist parties like Reform to take advantage of the poorest in society.
Real change needs to be delivered, especially as our neighbours across the pond have shown us that stability in an administration is not enough to combat the dangers of disillusion, disenfranchisement, and disengagement from democracy.
The Conservative budget: a comparative analysis by Cecily Hood
It has been just under a year since former Chancellor of the Exchequer Jeremy Hunt delivered his Autumn Statement on November 22, 2023. Since then, an overturn of government and appointment of the first Labour cabinet in 14 years has abruptly shifted the economic landscape.
When Chancellor Rachel Reeves delivered the Labour Budget on October 30, many were eager to assess how her economic plans would diverge from those of the Conservatives in the decade and a half prior. Labour rhetoric has consistently branded Conservative economic policy as irresponsible and dangerous, with Reeves claiming the former government had left the economy ‘on its knees’.
However, the budget has left much of the British public asking the same questions: ‘what are the main changes Reeves has outlined?’, ‘what do these changes mean for the British economy?’, and, perhaps most ardently, ‘will we really be better off under Keir Starmer?’.
Conservative economic policy under Jeremy Hunt, as outlined in the Spring Budget, largely focused on tax stability. Hunt chose not to raise income tax or VAT, while reducing NI contributions for employees by 2p, lowering the rate from 10% to 8%. Likewise, pledges to government spending were generally cautious, with Hunt promising a gradual increase to control overall public debt.
While initially well-received, tax cuts in Hunt’s Budget quickly drew criticism. Many argued that, despite being presented as a benefit to workers, these cuts would offer limited relief amid high inflation and ever-rising cost of living. Additionally, Hunt’s budget raised concerns regarding long-term economic security. While ‘crowd pleasing’ measures may have temporarily quelled public dissatisfaction, many critics highlighted the public’s preference for long term stability and public service provisions over immediate tax relief.
Hunt’s economic agenda came amidst an ongoing cost-of-living crisis within the UK. In 2022, inflation figures reached their highest since 1981 at 11.1% according to the Consumer Price Index. Rising costs towards gas, electricity, and food produced a devastating social impact, affecting every aspect of daily life, and widening social inequality. Against this backdrop, many members of the electorate turned to the Labour Party, hoping it would deliver the economic reforms needed for public services to recover.
The Labour Budget displays some radical divergences from those seen under Hunt, with notable changes to fiscal responsibility, a substantial increase in government borrowing, and a bold intention to ‘invest, invest, invest’.
After years of stagnation in public services, Reeves has pledged a radical increase in government spending, particularly towards health and education. Labour has consistently criticised the Conservative Party for starving these two core services of the funding they so desperately needed throughout its 14-year tenure.
However, in order to support increased public service funding, and plug the £22 billion ‘black hole’ left by the Conservatives, the Labour Budget has imposed some significant fiscal measures which have garnered significant opposition. Reeves’ introduction of several targeted tax increases, including those to Capital Gains, inheritance tax, and National Insurance for businesses has left many feeling disillusioned after promises of no tax rises.
Reeves has recognised this sentiment, claiming that “this is not the sort of budget we would want to repeat”, through she has reaffirmed its necessity against a dire backdrop. These difficult decisions had been anticipated by the Labour Party in the wake of Conservative governance, with much of Keir Starmer’s campaign rhetoric hitting the tagline: ‘things will get worse before they get better’.
Where the Conservative Budget under Hunt exhibited attractive tax cuts, Reeves’ Labour Budget marks a decisive shift towards the possibility of revitalised public services. Whether this risk will deliver long term stability or leave the public grappling in the consequences of higher taxes and increased debt under Labour’s approach remains to be seen.
