After a month of turmoil in Labour, on 26 November Chancellor Rachel Reeves proudly announced she was presenting ‘a Labour budget’ to cheering MPs, rejecting austerity for the masses, and government borrowing and debt for the markets. She claimed her budget would mean ‘the biggest reduction in child poverty over a Parliament since records began’ and cut the cost of living to ‘provide immediate relief for families’.
Labour MPs were relieved that a mooted 1% rise in income tax – breaking a 2024 election manifesto pledge – had been dropped, while the hated two-child benefit cap, a totemic issue for backbenchers, was scrapped, lifting 450,000 children out of poverty at the cost of £3.5 billion, as well as the high-profile but token ‘mansion tax’ on residences worth more than £2 million. The Guardian headlined, ‘Rachel Reeves targets UK’s wealthiest in £26bn tax-raising budget’.
However, nothing could be further from the truth.
Polls showed the package dropped like a lead ballon, the second most unpopular budget since 2010 after the infamous Liz Truss budget. Nearly half think it unfair and unaffordable (against single-digit positive views), while only 3% believe their household will be better off.
And they are right. Instead of taxing the rich, notwithstanding the weakest of reforms from capital gains to banker bonuses and tax loopholes, the working class and poor will bear the bulk of the £26 billion extra taxes. The Joseph Rowntree Foundation finds that by 2029 the average household will be £850 worse off. With the scrapped two-child benefit cap only halving the income decline for the poorest third. the budget merely made this belt-tightening ‘less painful’.
Rowntree declares this ‘the bleakest parliament on record for living standards’. Meanwhile the current budget builds in a £22 billion ‘headroom’ (surplus) to appease the markets and business in the event of further deficits.
The budget may have saved Reeve’s job and Starmer’s government for now, but they remain respectively the most unpopular PM and Chancellor in history. It remains to be seen whether the budget will face a backlash.
Labour turmoil
An intense month of Labour turmoil and market scepticism are the negative pressures that went into shaping the November budget. It was an open secret that Labour would raise taxes. The Office of Budget Responsibility (OBR) had downgraded growth for the coming years as well as longer-term productivity figures, which Reeves claimed had created a £20 billion black hole in government finances. Created by the previous Tory government to institutionalise pro-business policies and austerity, the OBR has become the policeman of Labour’s ‘fiscal responsibility’.
On top of this Reeves pledged no more significant tax rises on business after the backlash against her 2024 budget and the Employment Rights Bill. Given these two contradictory shackles – no more taxes on the bourgeoisie and balancing the books – the markets waited to see how she would put the budget back in the black.
In a press conference on 4th November, which eventually became infamous, Reeves floated the possibility of raising income tax by 1%, saying ‘we will all have to contribute’, thereby breaking a direct election manifesto promise.
Backbench MPs were already under immense pressure from Labour voters fed up with gift-gate, cuts to winter fuel and disability benefits, the cost of living and rising unemployment. This pressure is intensified by parties pulling away support from the right (Reform) and left (Greens and potentially Your Party). November Polls show the lowest voting intentions for Labour ever (18%, Ipsos) and the lowest satisfaction in a PM (-66%) in history.
With Reform a close second to Labour in over ninety seats, threatening their jobs, backbench unrest forced a partial U-turn on both benefit cuts earlier this year. A major breach of Labour’s manifesto promise not to raise taxes on ‘working people’ would have caused mass outrage as workers struggling with rising prices pay more tax and the rich are let off the hook. It would have been a gift to Nigel Farage’s Reform.
Massive unrest within the Labour party and MPs followed with pervasive rumours of a leadership bid, with Starmer having to publicly rebuke the plotters and Number 10 insiders briefing against Wes Streeting as a possible candidate who protested he was a ‘faithful’. A backbench revolt could have sunk the budget, taking Reeves with it and possibly Starmer.
Instead Reeves backed down, replacing an income tax rise with a freeze on current tax-rate thresholds up to 2031, which will actually raise more money from working and middle class households. Labour insiders have tried to claim that this climbdown was due a ‘new’ OBR forecast showing rising wages and therefore tax revenue.
The agency’s Chair Richard Hughes debunked this claim by releasing the timetable of the OBR’s briefings to the Treasury, according to which Reeves had known the forecast for weeks, before resigning. Though the ostensible reason was the leaking of the budget, everyone knew the forecast that Reeves kept secret was the real reason. Kemi Badenoch and Ed Davies promptly called on Reeves to resign.
What are socialists and trade unionists to make of all this? First we should reject the Tories’ and Lib Dems’ ‘shock and horror’ as humbug, befitting of the season. Those two pro-austerity bosses’ parties are past masters of spin-doctoring the facts; they should shut up.
Second this was a clear attempt to test the waters for an income rise, which would have hit the working class. That of course is still on the cards if there is another sharp contraction.
Thirdly, we should have no sympathy for the technocrats of the OBR. Its purpose for the main part is not to prevent another Kwasi Kwarteng mini-budget, but to discipline Labour and the trade unions into accepting the pro-growth (in reality pro-profits) mantra, regardless of the social cost for the working class. We should call for its abolition.
In its place the unions should monitor the cost of living and demand its easing, especially for the poorest and most vulnerable. However, almost every Labour-affiliated union leader, with the exception of Unite’s Sharon Graham, and the TUC’s Paul Nowak praised the budget or gave it tacit approval. A quick look at the details reveals this compliance for what it is: betrayal.
The budget’s main measure, the tax threshold freeze, worth £8 billion, nearly a third of the overall budget savings, is deeply regressive. As many as 780,000 low-income workers will pay tax for the first time as their earnings ‘rise’ over the poverty-pay £12,570 threshold, even if in real terms, after inflation, their purchasing power falls.
Another 900,000 will be dragged into the higher bracket (over £50,270 a year). Over the 10 years of this threshold freeze, introduced in 2021, 5.2 million low-paid will start to pay tax and 4.8 million be dragged into the higher bracket. The highest earners are unaffected.
Pensioners on the state pension will soon be over the minimum tax threshold and could end up paying part of it back, while 2.5 million pensioners already pay tax. Student debt repayment thresholds will also be frozen for three years too, meaning more low-paid graduates will start paying this off.
Meanwhile inflation has continued to rise since the election, hitting 3.8% in October, the highest level since the start of 2024. Food prices are rising by 4.9% annually, hitting the poorest, precisely those whose meagre wage rises will push them into taxation.
One Labour MP is quoted in The Guardian saying, ‘Our number one priority is supposed to be about getting the cost of living down. But this budget makes most of my voters poorer in an election year. Young people, who are going Green, are particularly screwed. I don’t understand how this is supposed to work.’
But it does work – for the rich. Freezing tax thresholds may mean the pain is drip-fed to us by stealth, avoiding a universal attack on workers that breaks a manifesto pledge. However, it continues the tendency to shift more and more of the costs of ‘fiscal responsibility’ and stagnation onto the mass of taxpayers, while the rich relatively pay little.
Labour’s bosses’ budget
The budget, patching up government finances with a raft of small measures, does contain some progressive elements: frozen prescription fees and train fares; significant hikes to the national minimum wage and state pension; and tweaks to the energy policy, cutting the average bill by £150 a year, £300 for poorer households.
While all of these will be eroded by inflation and higher taxes, there is one nasty, direct cut in the budget: £300 million is cut a year from motability VAT exemptions, so that the disabled will have to pay more out of their benefits for cars and mobility vehicles. The Treasury – not the DWP – demanded this policy saving £1 billion over the course of the government. This is just the opening shot in Reeves’ promise in the budget to focus relentlessly on benefit ‘reform’, rebranded as helping get youth into work.
Reeves pledged only to ‘maintain’ health and education spending, a telling choice of words. NHS spending has historically grown at 3.6% per year in real terms, but the figure for England over the next four years will average just 2.4%, with private capital guaranteed a bigger role and a bigger slice of the pie. Health charities believe at least a 4% rise is needed to cover drug price rises and doctors’ strikes.
The government is to relieve councils of burgeoning Special Education Needs and Disability (SEND) spending by 2029. But the OBR forecasts the education budget will face a £6 billion shortfall by then, demanding the Treasury ‘reforms’ SEND spending, i.e. cuts.
This runs against promises made by education minister Bridget Phillipson that next year’s SEND white paper will not mean cuts. And it could get worse in March 2027 when local councils’ £14 billion of accumulated SEND debts become due – that is Reeves’ entire ‘headroom’!
Ringfencing education and health spending, while in no way solving the crisis in schools and the NHS, spells certain cuts to others, such as the Ministry of Justice and local authorities, groaning under debt.
Meanwhile military spending continues to rise, to 2.4% of GDP this year (£62 billion) and 2.5% in 2027, before mushrooming to 5% (including security) in the next parliament. Not only does this increase the likelihood of military adventures and wars, but it also will wipe out any economic gains trickling down to the working class.
Overall Reeves may have made the numbers balance for now, but fiscal stability is not the same as growth, which the OBR has downgraded, nor higher living standards, with real average income set to rise by a miserly 1.25% per year.
Government debt stands at 94.5% of GDP and is predicted to rise to 97% in three years, compared to the average for advanced economies of less than 50%, leading to high borrowing costs. Like the rest of the budget, pain comes tomorrow, with borrowing higher than expected for the next three years before being cut back sharply in 2029 – or not, given it is an election year.
As a result, the neoliberal Institute for Fiscal Studies (IFS) think-tank has called the budget ‘a fiscal fiction’. If the bond markets swing towards the same conclusion, Reeves’ budget could fall apart rapidly. Even if she avoids that, the underlying issues of a declining British capitalism, mired in stagnation, debt and taxes, will re-emerge to cause further fiscal and political crises destabilising the government.
Conclusion
The Budget is not where the story ends; it simply makes clear where the struggles must begin from. This includes those vital areas where the budget was silent.
For example, there was nothing for housing, meaning Labour authorities are beginning again to drop their quotas for council and social housing in demands on developers. Renters’ unions, TRAs and Your Party branches need to warn residents of further cuts on the way and campaign for action to demand more, truly affordable housing.
Unions should design their pay campaigns to claw back the stealth tax rises caused by the freeze in the thresholds. The bosses should be made to pay for these tax increases by coordinated strikes for inflation-proof, tax rise proof cost of living pay rises. Any cuts to SEND provision in schools and colleges must be met by strikes, backed up by community campaigns, like the US teaching unions have achieved.
But most of all, rank and file trade unionists and activists in the new socialist party, Your Party, need to demand the union leaders break their silence and begin a fight against Starmer and Reeves’ government. There can be no talk of supporting Labour for fear of letting the Tories and Reform in – failing to fight against this government will only increase the chances of Farage winning.
The best way to stop the right is to show the working class that the left can fight and win. Our loyalty is to our class, not the Labour Party.
