In a significant session at the dispatch box, the chancellor’s address to Parliament faced an unusual incident: the early release of the Office for Budget Responsibility’s (OBR) assessment of her fiscal measures, described by Shadow Chancellor Mel Stride as “outrageous.” The chancellor acknowledged the incident as “deeply disappointing,” attributing the chaos to a “serious error” by the OBR.
Despite the unexpected hiccup, the chancellor emphasized her administration’s commitment to economic recovery and growth, referencing trade agreements with the US, India, and the EU, along with planned reforms aimed at boosting public investment to its highest level in four decades. She reiterated her contention that the “£22bn black hole” in public finances, a remnant of Conservative governance, has been partly bridged through increased taxes on the wealthy, facilitating essential funding for the NHS.
Criticizing the notion held by some opponents that state intervention should be minimal, she articulated that “working people demanded and deserved change.” She reaffirmed her stance against austerity, pledging to address the cost of living, and to curtail debt and borrowing.
The chancellor’s approach centers on strict adherence to fiscal rules, prioritizing tax increases over spending cuts. One notable measure includes a three-year freeze on income tax and national insurance thresholds beginning in 2028, a decision that, while expected, will usher many into higher tax brackets. The chancellor acknowledged the potential burden on working individuals but assured that reforms would ensure the wealthiest carry a larger share of the tax load.
In the realm of property and council tax, taxation on property, dividends, and savings income will see an incremental rise of two percentage points. Additionally, a council tax surcharge for high-value properties over £2 million will be introduced, a move that has received mixed reactions from Labour MPs and unions advocating for more expansive reforms.
Pension reforms will also take center stage starting in 2029, with a cap on salary sacrifice into pensions, anticipated to generate approximately £4.7 billion. This contention could potentially reshape investment behaviors among higher earners as tax benefits for pension contributions are curtailed.
The chancellor also revealed plans for Individual Savings Account (ISA) reform, reducing the cash limit to £12,000 by 2027, although those over 65 will be exempted. This has raised concerns among savers, which the chancellor tried to assuage by maintaining the stock and shares ISA limit.
In a move designed to alleviate financial stresses from rising energy bills, the chancellor announced the cancellation of the costly Energy Company Obligation (ECO) scheme, claiming it resulted in greater expenses for families in fuel poverty than the savings it promised. Households could potentially see a reduction of £150 on their bills in the coming year.
A proposed increase in the national minimum wage aims to benefit low-paid workers, while duty rates on tobacco and alcohol will continue to rise in line with inflation. Additionally, dairy-based drinks will now fall under the sugar tax, reflecting ongoing health initiatives targeting youth consumption.
Impressively, fuel duty remains frozen for the next five months, sustaining a longstanding freeze that has persisted since 2010-11. However, subsequent plans reveal an eventual increase that could further complicate the fiscal landscape.
The introduction of an excise duty on electric vehicles and new measures for road maintenance funding aims to align with environmental goals while also addressing the country’s infrastructure needs. This, paired with a revenue-raising strategy involving higher business rates for larger properties, is intended to support smaller businesses.
Reeves also spoke to regional funding allocations, highlighting a total of £13 billion available for mayors to enhance skills and infrastructure, alongside additional funding for the devolved governments in Northern Ireland, Wales, and Scotland to promote local economies.
Ultimately, the chancellor framed her speech around the theme of “choices,” declaring that her government would prioritize initiatives that aim to uplift the cost of living, improve public services, and facilitate welfare without succumbing to austerity or excessive borrowing. The budget’s reception from Labour MPs has been largely positive, particularly regarding the abolishment of the controversial two-child benefit cap, marking a significant political shift for the party.
Looking ahead, growth forecasts have been modestly adjusted, projected at 1.5% for the current year and dropping slightly for subsequent years. Inflation figures have also presented a challenge, now anticipated to hit 3.5%, prompting ongoing concerns about rising household costs.
Amidst varied sentiments from critics and supporters alike, the chancellor’s budget strategy reflects a complex balancing act—addressing fiscal pressures while attempting to foster public investment and support the populace in navigating the repercussions of living costs and economic uncertainty.
