Deep fear and skepticism as Rachel Reeves prepares for her big Budget moment

It took a long time. If you feel like this budget has been going on for ages, you’re right.

Not just because, by the count of one senior MP, thirteen – yes, thirteen – different tax proposals have already been tabled by the government before the final decisions are made public.

Or because of an ever-growing pile of reports from various think tanks or research groups with useful suggestions that have also made headlines.

But because the budget process itself has actually been going on for months.

In July, Chancellor Rachel Reeves held the first meeting with aides in her Treasury Department office to begin planning.

“Everyone was getting ready to open Excel,” an aide recalled, but Reeves announced she didn’t want spreadsheets or Treasury scorecards.

Instead, she wanted to first figure out how to pursue her top three priorities, which she wrote down on A5 paper with Ministry of Finance letterhead.

That trio is what she will commit to next week: cutting the cost of living, cutting NHS waiting lists and cutting the national debt.

The messages to the voting public – and each contains an implicit message to the powerful financial markets: control inflation, keep spending big on public services, protect long-term money on things like infrastructure, and try to keep spending under control to tackle the country’s big, fat pile of debt.

Reeves’ team is confident the chancellor will be able to tick all three of these boxes on Wednesday.

But there is deep fear in her party and skepticism among her rivals and in the business community that Reeves’ second budget will instead be hampered by political constraints and contradictions.

Reeves herself will no doubt point to the restrictions imposed on her before she had even walked through the doors of Number 11 as chancellor.

Big debts. High taxes. Years of pressure on spending in some areas have led to some parts of public services becoming worn out. The arguments about the past can be thin.

“Everyone accepts that we have inherited a bad position,” a senior Labor figure told me, “but it is only right that people expect things to improve.”

Some of the restrictions on Reeves’ choices are stricter because of Labor itself.

There is a promise in the original election manifesto to avoid increases in the three big taxes – income tax, national insurance and VAT – cutting off high earners from the public purse.

What is now accepted in most government circles as the real effect of the government’s early doom-laden messages: things will get worse before they get better.

In last year’s budget, Reeves chose to leave himself just £9 billion of what is called ‘wiggle room’ – in other words, a little money to soften the government if times are tougher than hoped, which indeed happened.

A former Chancellor of the Exchequer, Lord Bridges, told the Lords: “This is not a budget buffer; it is a budget waffle, so thin and fragile that it will snap at the slightest tap.”

Well, it has been picked up by the official number crunchers, the Office for Budget Responsibility, who have calculated that the economy is not functioning as well as previously thought, leaving the Chancellor short of cash.

That’s possible Read more about what it means here.

The level of debt the country already has means that markets do not want the country to borrow more.

But perhaps most importantly, the limitations on what is possible for Reeves in terms of cuts, spending or borrowing stem from the biggest political fact of the moment: this administration is unpopular with its own base, and it doesn’t always feel like the leadership is in charge.

Downing Street has already shown that it is willing to put aside plans that could save a lot of money if the backers start strong enough.

Prime Minister Sir Keir Starmer and Reeves were forced to halt cuts to the US economy winter fuel surcharge in 2024, and on prosperity earlier this year. And there is also the expectation that additional money is on the way.

A senior MP told me: “They need to widen the leeway, do something big about energy costs, and they need to do something for the soft left. [the] cap for two children – they got people up the hill.”

It will be expensive, but Labor MPs have been led to expect that at least some of the restrictions on benefits for large families will be rolled back and help with energy bills will be forthcoming.

For some members of the government it is deeply, deeply frustrating. Someone told me that Labor backbenchers “want everything for nothing – we should be the adults driving the car, not the kids in the back”.

As Reeves received the final figures for her big budget moment on Friday, multiple sources pointed to other decisions the government has made that are making its job more difficult – areas where Labor appears to be contradicting or confusing – and even undermining – its own ambitions.

On some occasions the Chancellor, supported by the Prime Minister, will say that growing the economy and helping businesses is their absolute number one priority.

But their early choice to make it more expensive for businesses to employ additional staff, by increasing National Insurance, has been seen as a complete opposite direction by many businesses, with many reporting that more expensive staff costs make growing their business much more difficult.

Ministers may have expressed their hopes to reduce regulation: with more than 80 different regulators setting rules, you can see why.

Still, important new protections for workers are being introduced, which means more regulations.

Labor preached that they would provide political stability after years of Tory chaos. We are not in the realm of the party that churns through prime ministers at the rate of knots, at least not yet.

But endless reorganizations in Number 10, very public questions about Sir Keir’s leadership and feverish speculation about impending budget decisions do not match the stated objectives that Sir Keir intended to end the drama.

There are also special features. The last time Transport Minister Heidi Alexander was on the program she promised consumers more help buying electric carsmaking them cheaper to own.

But as Alexander prepares to return to the studio, rumor has it that the Chancellor is too adding a new pay-per-mile tax for electric vehiclesmaking them harder to pay.

Negotiations were still ongoing in Whitehall late on Friday over whether tax on oil and gas companies should be made less harsh, with some ministers calling for the limits to be softened so that companies do not withdraw from the North Sea and take their future investments in renewable energy elsewhere.

The contradiction is that Labor is promising that there will be savings on bills and thousands of jobs on offer if energy companies move more quickly to green energy.

But the tax, which they raised last year, could drive away some of those same businesses, and with them the promise of future growth. No government has complete policy purity across the board.

In an organization that spends over a trillion pounds a year and makes thousands of decisions every week, it is foolish to imagine that these can all be perfectly aligned with a wider purpose.

But even from Sir Keir himself, as we have discussed many times, a common complaint about this government is the lack of clarity about its overall purpose.

A frustrated senior figure recently told me that sometimes they wonder, “What are we even doing here?”

Market pressure makes it difficult for the Chancellor to borrow more. Labor supporters are said to be allergic to major cuts. And big tax increases aren’t exactly at the top of the list for a restive public with an unpopular government.

The reality of politics can often make it difficult for governments to make smart economic choices. The realities of the economy can often make it difficult for governments to make the best political decision.

On Wednesday, Reeves will have to credibly combine the two, with a series of choices that will shape the future of this troubled administration.

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