Chancellor Rachel Reeves is preparing to deliver one of the most significant budgets in a generation this Wednesday, a package laden with political jeopardy for Keir Starmer's embattled government.
The budget is set to be big in scale and consequence, featuring substantial tax increases, major spending commitments, and profound implications for the future of the Labour administration. With the government fighting for survival, this fiscal event represents a critical test of its credibility.
The Financial Tightrope
At the heart of the budget are three core principles: cutting NHS waiting lists, reducing national debt, and tackling the cost of living. The chancellor has explicitly ruled out a return to austerity and further increases in government borrowing.
Instead, Reeves faces a £20bn gap in public finances largely created by the Office for Budget Responsibility's decision to downgrade the UK's productivity forecasts. Additional pressures include about £7bn needed to reverse earlier decisions on winter fuel allowance and welfare cuts.
By avoiding increased borrowing, the government hopes to send a message of stability to financial markets, which could help control inflation and keep borrowing costs low - ultimately easing pressure on household budgets.
Breaking Promises, Raising Revenue
This budget marks a significant departure from Labour's election commitments. Only a year after raising £40bn in taxes and promising not to return for more, the chancellor is now seeking over £30bn in additional revenue.
The most telling indicator came when the prime minister refused to recommit to his manifesto promise not to raise income tax, VAT or national insurance during his recent G20 appearance in South Africa.
While plans to directly increase income tax rates have been shelved after better-than-expected forecasts, the government will instead implement a two-year freeze on income tax thresholds until 2030. This measure directly contradicts Reeves' own words from the 2024 budget, where she stated that freezing thresholds "will hurt working people" and "take more money out of their payslips".
Spending Increases and Political Risks
Alongside tax rises comes significant new spending, most notably the £3bn-a-year decision to lift the two-child benefit cap. This represents another broken promise, as Starmer had explicitly ruled out this measure during the election campaign, citing affordability concerns.
While Labour MPs are expected to welcome the move, polling suggests it may prove unpopular with the wider public. For the Conservatives, it provides ammunition to attack what they describe as "same old Labour" - taxing more to spend more without cutting public expenditure.
The budget also carries substantial implementation risks, with the chancellor expected to unveil a range of revenue measures that could include a mansion tax, gambling tax, tourism tax, or even a milkshake tax. Ministers fear that what appears to be a modest measure could explode into a major political controversy, similar to George Osborne's ill-fated "pasty tax" in 2012.
A Government Under Pressure
Seventeen months into their term, Labour faces a significant trust deficit. The economy isn't firing, the cost of living crisis persists, small boats continue to cross the Channel, and junior doctors remain on strike.
The government intends to use the budget to "tell a better story" about its achievements, highlighting school breakfast clubs, extended free childcare, increased national living wage, and above-inflation pay rises for public sector workers.
However, the drumbeat of leadership change grows louder as the prime minister faces the challenge of convincing both his own MPs and the voting public that his government can deliver on its promises. With this second major tax-raising budget following last year's record increases, Keir Starmer has serious convincing to do as his administration fights for political survival.
