Rolling the Budget pitch

Paul Montague-Smith, senior counsel – public affairs at MRM, reads the tea leaves in the wake of Labour’s first Budget since 2010, and what it means for the political machinations of Westminster.

Budget statements have a very familiar feel to them. Their contents used to be a closely guarded state secret. Changes could be made right up to the wire.

Nowadays key measures are not just leaked, but even announced by Government ministers in advance. ‘Rolling the pitch’ now happens so heavily that you could play a test match on it.

Part of the reason may be something to do with decisions having to be finalised around two weeks in advance, so that the Office of Budget Responsibility (OBR) can opine on them.

Despite severe criticism from the Speaker of the Commons that it breaches the ministerial code, it continues to happen every time. There’s no reason to think it will stop. The opportunity for ministers to try and frame the narrative while they’re holding all the cards is probably thought too valuable.

This week’s Budget statement was a rather feisty battle to win that political narrative and, as ever, to draw distinct dividing lines between the two major parties.

Rachel Reeves delivered her first statement – and the first as a female Chancellor – with a good amount of authority and fluency. As she has since the general election, she painted a picture of broken public finances caused by an irresponsible Conservative Government. Her priority, she said, was to ‘fix the foundations of the economy’ and invest to deliver growth.

She announced tax rises to generate over £40bn of extra revenue each year by 2029-30, with the majority (around £25bn) coming from the well-trailed increase in employer national insurance rates, plus a surprise big cut to the secondary threshold.

As expected, the rates for Capital Gains Tax (CGT) were increased (to 18% and 24%), with the rate for carried interest up to 32% (until it is aligned with income tax from 2026). ‘Non-domicile’ status is being abolished completely, to be replaced by a new residence-based regime.

Unspent pension pots will no longer be exempt from inheritance tax from 2027. VAT on private schools will start in January and they will no longer be able to claim business rates relief. Increasing the interest rate on late payments to HMRC, plus the old chestnuts of cracking down on tax avoidance and welfare fraud, are hoped to bring in an extra £7bn a year by 2030.

Also as trailed, she confirmed she was changing the way that the Government measures debt to ‘free up’ billions of pounds for infrastructure spending, to “repair the fabric of our nation”. As soon as the Chancellor sits down after finishing her statement, politicos and policy wonks like me rush to download the Budget ‘Red Book’ and accompanying policy costings documents.

The policy costings table shows that while her tax policy decisions are expected to raise over £180bn in the years to 2030, her spending policy decisions are expected to cost £388bn. Of the difference, over £105bn will go on additional capital investment.

With ‘no return to austerity’, Government departments are set to get real term increases of around 1.3% in their budgets. Over £22bn extra is being allocated for the NHS over the next two years to help it deliver improved productivity and more appointments. Big additional spending on affordable housing and education was also announced.

It is the scale of this borrowing and spending that has the Conservatives up in arms, particularly given Labour’s ruthless efforts to frame them as having been fiscally irresponsible when they were in charge. It fell to Rishi Sunak as Leader of the Opposition – and his last time at the despatch box before returning to the backbenches – to respond to the Chancellor’s statement.

He argued that taxes will now be higher than they ever have been. That higher taxes, borrowing and spending will be paid for by working people, and that Labour had knowingly lied to voters during the election in direct contravention to the Prime Minister’s promise to rebuild trust in politics.

Uncomfortably for the Chancellor, he pointed out that Labour inherited the fastest growing G7 economy from the Conservatives, but OBR analysis on the Budget shows that growth forecasts are now lower than they were under his Government, despite growth being Labour’s central mission.

The Chancellor will be banking that the changes to the debt rules and the scale of planned borrowing to invest in infrastructure won’t spook the markets. If it does, the cost of servicing our huge national debt will become even more difficult to manage. Time will also tell whether changing the debt rules and spending billions on infrastructure will actually lead to the growth needed to generate the money for the public services we want and expect.

What is clear is that the battle lines between the two main parties over the political narrative for this new parliament are now very firmly drawn. Recent polling suggests the Prime Minister’s personal approval ratings have plummeted faster than any of his predecessors.

With the new leader of the Conservative party being announced this weekend, they and their new team will be looking to dismantle the Government’s narrative and reposition their own party as the most trustworthy with the public finances.

Given recent history, though, realistically that’s not likely to be a short-term project.