This was – without too much exaggeration – a historic Budget. It was the first to be delivered by a female Chancellor, Labour’s first Budget in 175 months, it saw the biggest fiscal loosening in decades, it included the single biggest tax rise in 30 years, and today’s announcements mean that by 2029 the tax burden will be the highest since records began.

The pressure on Rachel Reeves going into today was intense. Her task was to provide a reset moment for the whole government after several months of being buffeted by unforced errors and a lack of direction. And she needed to do something substantial without following in her predecessor but one’s footsteps and triggering a market meltdown.

The anticipation was even greater thanks to Labour’s ‘Ming vase’ strategy in the election of promising everything to everyone. Reeves herself said that if Labour won, they “would be the most pro-business government this country has ever seen”. There were promises of the highest economic growth, green jobs, increased investment, more teachers, a better NHS, no increased taxes for “working people”, and all of this working within the same fiscal constraints as the Conservatives.

In the leak-filled past few weeks, it became increasingly clear that the Chancellor’s first Budget was going to be an exercise in fiscal realism, not the pre-election boosterism in which both parties indulged. The IFS and others did their best to warn of this, criticising the “conspiracy of silence” between the two major parties on the need for tax rises before the election.

That silence is now broken. There will be £40bn in tax increases, largely impacting businesses, with borrowing and spending to benefit the lower paid, the NHS, and the green transition. The star of the show was the increase to employer National Insurance Contributions to raise £25bn per year by the end of the Parliament. This translated to only a small increase across the board in departmental spending, compared to the Conservatives’ plans, but a major boost for the NHS. The other big winner from today were those on the lowest salaries. There was a 6.7% increase to the National Living Wage for three million people at a cost of £4.2bn to business, and a 16% increase to the National Minimum Wage for around 500,000 18 to 20-year olds at a cost of £1.2bn. This comes on top of the recently announced package of employment rights reforms that will cost businesses around £3bn at a central estimate to provide more job security for two million of the lowest paid.

People will wonder how these significant increased costs to business align with Labour’s central pitch to the electorate of delivering the highest economic growth in the G7. Expect commentators and the Opposition to jump on this given the OBR’s assessment that today’s Budget will temporarily boost UK GDP in the next few years, but leave it largely unchanged in five years’ time. But this is only the first of several budgets. If today was about “fixing the foundations”, sunlit uplands will surely follow as the next election nears – a well-established political strategy for a party seeking another term. 

By Thomas Irven
Senior Account Director at Grayling and former Special Adviser