For Britain’s Prime Minister Keir Starmer and Chancellor of the Exchequer Rachel Reeves, a lot is riding on the upcoming budget announcement.TEMILADE ADELAJA/AFP/Getty Images
After months of speculation and indecision, Britain’s Chancellor of the Exchequer Rachel Reeves will unveil the government’s long-awaited budget this week and its ramifications will go far beyond the economy.
A lot is riding on what Ms. Reeves announces on Wednesday, including her political future and that of Prime Minister Keir Starmer, who is facing growing questions about his leadership.
“Both the Prime Minister and the Chancellor are, as the saying goes, drinking at the last-chance saloon,” said Tim Bale, a professor of politics at Queen Mary University of London.
Since winning a massive majority in the July, 2024, election, the Labour government has struggled mightily, and the party now trails the populist Reform UK in most opinion polls.
Mr. Starmer’s campaign pledge to kick-start the economy has failed to deliver tangible results. Meanwhile the cost of living has soared for many families and confidence in most public services has plummeted.
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There have been rumblings within the Labour Party that Mr. Starmer could be ousted as leader within months if the budget falls flat and the party performs poorly in local elections in May.
Last week, Mr. Starmer had to fend off media reports that Health Secretary Wes Streeting and Manchester Mayor Andy Burnham were plotting leadership bids. Mr. Streeting vigorously denied the claims, but Mr. Burnham has been less convincing about his support for Mr. Starmer.
“Unless – and it seems vanishingly unlikely right now – this budget encourages voters to see the government in a new light and can genuinely tackle what many are experiencing as a cost of living crisis, then it’s odds-on that Starmer and Reeves will be out of their jobs after what’s promising to be a truly catastrophic set of local election results next May,” Prof. Bale said.
Ms. Reeves has borne the brunt of the government’s failure to deliver economic growth.
In last year’s budget, she introduced £40-billion, or $73.8-billion, in tax hikes and set strict limits on overall spending, to address what she said had been years of fiscal mismanagement.
Those measures were supposed to be one-offs, but Ms. Reeves has been derailed by the sluggish economy as well as the government’s decision to increase defence spending and reverse course on a controversial move to end a winter fuel allowance for low-income seniors – all of which has left a £30-billion shortfall in public finances.
For weeks, Ms. Reeves hinted that she would fill the gap by increasing income tax rates, something Labour promised during the election campaign that it wouldn’t do. She relented after a fierce public backlash but her change of heart has led to more uncertainty.
She caused more confusion by promising sweeping welfare reform only to recently bow to pressure from Labour MPs and agree to scrap a limit on child benefits. That will cost around £3.5-billion annually and Ms. Reeves hasn’t outlined how it will be funded.
In the 2024 budget, Ms. Reeves introduced tax hikes and set limits on overall spending.Leon Neal/Reuters
“We’ve had month upon month of speculation – fiscal fandango, basically. And that’s been costly for the economy,” former Bank of England economist Andy Haldane told the BBC on Sunday. “It’s caused paralysis among business and consumers.”
Ms. Reeves has lashed out at critics and told the Times last week that she was “sick of people mansplaining how to be chancellor to me.”
In an article in the Times on Sunday, she said the budget would concentrate on cutting hospital waiting lists, lowering the cost of living and reducing the national debt. “I know that people are impatient for the change that we promised and frustrated at the unfairness in our system. I am impatient and frustrated too,” she wrote.
She has announced that the budget will include a freeze on rail fares and NHS prescription drug charges. There’s also speculation she will introduce a tax on the sale of homes above £1.5-million.
Her big tax measure is expected to be an extension of the freeze on personal tax thresholds until 2030, which means that as incomes rise more people will be pulled into higher tax brackets.
Business groups have expressed frustration that Ms. Reeves has not articulated a clear vision and they worry that the budget will contain a myriad of tax and spending measures with no focus.
On Monday, Rain Newton-Smith, who heads the CBI, one of Britain’s largest business organizations, called on Ms. Reeves to have the courage to introduce “one or two broad tax rises, rather than death by a thousand taxes.”
Tony Travers, an associate dean of the public policy faculty at the London School of Economics, said the budget is unlikely to provide much of a lift for the government. That’s largely because Ms. Reeves and Mr. Starmer haven’t set out guiding principles about how they plan to spur growth.
“I don’t think the budget gives the government much chance of turning out well. So in a sense a good result for the government would be that it didn’t make them any more unpopular,” he said.