Labour government set to present its first budget

The Labour administration has pledged a “decade of national renewal,” promising to protect living standards, improve public services, and drive investment.

• EasternEye
• 27 October, 2024

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By: EasternEye

THE LABOUR government is preparing to present its first budget on Wednesday, with Keir Starmer indicating that “painful” decisions on taxes and public spending will be required.

This budget marks the first fiscal update under the centre-left government, ending 14 years of Conservative governance, and is seen as a key element in Starmer’s agenda to stimulate the struggling economy.

The Labour administration has pledged a “decade of national renewal,” promising to protect living standards, improve public services, and drive investment. However, analysts caution that achieving these goals may be challenging, given the strain on public finances from rising debt levels largely attributed to the Covid-19 pandemic.

Chancellor Rachel Reeves, who will deliver the budget to parliament, has committed to maintaining “iron discipline” over the public finances.

Below is a closer look at the anticipated tax and spending strategies.

Revised fiscal rules

On Thursday, Reeves announced plans to adjust Britain’s fiscal rules, aiming to allow the government more flexibility to borrow for investments in public projects.

“We need to invest more to grow our economy… but we’ll only be able to do that if we change the way that we measure debt,” Reeves said in an interview with the BBC.

The new approach is expected to use a broader debt measure that considers future returns on investments. Analysts estimate this change could provide up to £50 billion in additional fiscal space.

Tax increases

To address what Labour describes as a £22 billion shortfall in the budget left by the previous Conservative government, Reeves has indicated that taxes will need to rise alongside “tough decisions on spending and welfare,” as she wrote in the Financial Times.

Reeves stated that her revised fiscal rules will ensure that day-to-day spending aligns with revenue. Labour has vowed not to increase taxes on “working people,” suggesting that income tax rises are off the table.

Among potential tax changes, capital gains tax and inheritance tax increases are considered likely, while there is speculation that a windfall tax on banks could also be introduced.

Growth projections

The Office for Budget Responsibility (OBR) will release updated economic growth forecasts alongside the budget. The International Monetary Fund recently revised its forecast for UK economic growth this year to 1.1 per cent, up from 0.7 per cent.

The OBR will also update projections for 2025 and assess future debt levels, with public debt nearing 100 per cent of GDP, the highest since the 1960s. In a positive sign, inflation has dropped below the Bank of England’s target of 2 per cent, leading to recent interest rate cuts.

Policy announcements ahead of the budget

Since its election victory in July, Labour has introduced several key economic policies. These include moves to improve post-Brexit relations with the EU, where Starmer has actively engaged with European leaders to rebuild alliances.

The government has also rolled out a green energy initiative, establishing a publicly-owned entity to invest in renewable energy, including offshore wind and nuclear. Plans to fully nationalise the railways and create a national wealth fund aimed at boosting infrastructure investment are also in motion.

While Labour faced criticism for scrapping a winter fuel benefit for millions of pensioners, it has received support from unions for brokering pay agreements that have ended strikes, notably among junior doctors.

(With inputs from AFP)