Labour government looks to record taxation to revive fortunes

It was a budget quite like no other. Not only did it introduce record tax increases, but the market-sensitive document was accidentally published a full 40 minutes before Britain's Chancellor of the Exchequer Rachel Reeves was set to unveil it in the House of Commons.

Pundits were quick to pounce, given the amount of leaks and briefings in the weeks before, with some calling it a ‘multi-shambles’. The UK's Office for Budget Responsibility, which publishes its verdict on the budget once the chancellor sits down, took the blame. While the department pleaded a “technical fault”, the act was another breach of the principle of closely guarded secret that has surrounded every budget since Victorian times.

Even before she got to her feet, the chancellor received a dressing-down from Deputy Speaker Nusrat Ghani condemning the “unprecedented” early disclosures that fell “short of standards that the House expects”.

UK budget introduces mansion tax on homes worth £2 million

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Chancellor muted

For a moment it almost felt as if the wheels were truly coming off. Ms Reeves rose following the admonishment, then struggled to be heard, not only above the Tory roars of dissent, but with her microphone on low volume.

That at least could be rapidly fixed, while the British economy appears some way off from mending. Ms Reeves did not hold back on the grim picture facing the country, which now has a £2.8-trillion debt – 86 per cent of GDP – with every £1 out of £10 in tax spent serving the interest.

Therefore, Ms Reeves tried to assure her backbenchers that it was necessary, in a roundabout manner, to raise taxes.

Those on moderate incomes are being forced to shoulder the burden with the now well-trodden tactic of freezing tax thresholds, meaning that through inflation and pay increase nearly one million more people will fall into the higher rate, which is 40 per cent on income over £50,000.

Thus, she accepted a breach of Labour manifesto by freezing the thresholds. “I won’t pretend otherwise now,” she said. “I am asking everyone to make a contribution.”

More manifesto breaches were found by sharp political observers who pointed to Labour’s promised £8.5bn of tax rises, which have now spiralled to £66bn over two budgets in 16 months.

‘Not disastrous’ City verdict

The coming days will tell us if Ms Reeves's budget has done enough to save Britain’s economy and indeed the political life of the Labour government.

Instead of applying a sensible but politically toxic 2-pence increase in income tax she opted for a smorgasbord of taxation, which she will hope the markets will view as sensible.

What the Chancellor cannot avoid is that she has raised taxes to a historic high by adding another £26 million in this budget, which did however provide her with £22 billion fiscal headroom.

Indeed, the marking from traders in the City signalled that it was not a negative budget, unlike her first that led to inflation meaning that interest rates could not be cut or productivity increased.

“It was not as bad as it could have been from a trading perspective,” a hedge fund manager told The National. “It was just a bit back-end loaded with a lot of tax receipts being from 2028 plus. So it’s a flat budget, unlike last year’s disaster.”

He added that the view in the City was that Ms Reeves needed to remain in post as “everyone is scared about a far-left coup and the type of government that would bring”.

With the growing mass departures of the rich to countries with lower taxes, such as the UAE, Ms Reeves understood that any further taxation on wealth would be self-defeating.

Taxing homes

A mansion tax has been levied on those who own homes valued at more than £2m, who will face an annual charge of £2,500 from 2028 going up to £7,500 for those valued £5m or more.

From the low starting point, Ms Reeves did show resilience and grew in stature as she retorted to the guffawing on Tory benches over the tax that people living in £5 million homes should be capable of stumping up the extra cash.

Badenoch’s 'Benefits Street'

But the Office for Budget Responsibility's blunder merely capped what has been a calamitous few weeks, with the leaks, briefings and then counter-briefings making for a hapless-looking government.

With plots to unseat him thickening, the budget is a make-or-break moment for Prime Minister Keir Starmer’s embattled leadership and the coming weeks will show whether his Chancellor has done enough to save their collective skin.

What is seen as poor political leadership by Mr Starmer has led to a plunge in his popularity with the prime minister experiencing a -51 per cent net favourability rating and Labour plunging to 18 per cent in the polls.

There was however a big winner on Wednesday. After a year of stalled leadership and policies, Tory leader Kemi Badenoch demonstrated deft political footwork by launching a wittily eviscerating critique both on Prime Minister Keir Starmer during earlier questions and then on to Ms Reeves.

With the government U-turns on the winter fuel allowance, disability benefits cuts and the two-child benefit cap leading to the OBR forecasting welfare spending to rise by £73bn to £406bn in the next five years, she had a big target to aim at.

“This is a budget for ‘Benefits Street’ paid for by working people,” she shot across the chamber. “She has broken every single promise, if she had any decency she would resign. She is the country's worst-ever Chancellor.”

As Ms Badenoch sat, senior Conservative MPs lined up to congratulate her. On the other side of the aisle the praise appeared more muted, with Labour MPs knowing that if the budget undermines the economy, time will be called on their tenure on the government benches.