Looking ahead to the Autumn Budget

Budget pitch-rolling used to be frowned upon (including by Labour when in opposition, as was pointed out by a raging Speaker Hoyle today) and was even a sackable offence for former Chancellor Hugh Dalton. But briefing in advance of the budget is now de rigor to ensure that the markets, the lobby and MPs are all aware of what is coming down the tracks.  

In an unusual move, the PM himself even gave a pre-budget speech this morning, outlining the reasons behind the key budget decisions and how they fit in with his broader political vision.  

This morning’s speech was an effort to tie the politics to the economic policy. Downing Street knows that Wednesday’s Budget is going to be unpopular and so Starmer set out the reasons for their decisions, what they mean for the future, and what the political battlefield will be for the next few years.  

Key to all of this will be greater investment in public services. The Labour government believes that crumbling public services and incompetent Tory management were the main reasons behind their general election victory. Labour is committed to making improvements and that means more spending, but Labour’s fiscal rules mean that it cannot come from increased borrowing; hence tax rises.  

But the best way to increase funding for public services is via higher sustained economic growth. This government believes that housebuilding can do a lot of the heavy lifting here (excuse the pun), along with greater investment in long-term infrastructure projects. The latter is why Reeves will also confirm changes to her fiscal rules to allow more borrowing for infrastructure investment (but not for day-to-day spending). This is all vital for the UK to retain economic credibility in the global financial markets, and to avoid a Truss-style mini-budget meltdown.  

Labour plans to reassure financial markets whilst also making the political point about Tory historic economic irresponsibility by utilizing the Office of Budget Responsibility. The OBR is there to mark the government’s homework and was infamously sidelined by Truss and Kwarteng ahead of the mini-budget in 2022. Alongside the Budget on Wednesday, the OBR will also be releasing its report into how the previous Tory government overspent and created the £22 billion ‘black-hole’.  

This may be naked politicking, but it sends a message to the markets that the OBR is heavily involved in checking government sums once again and that Labour’s fiscal plans have credibility. It also sends a political message to voters that the last Tory government was economically irresponsible, and Labour is now clearing up the financial mess.  

The Tory response to Labour’s budget largely writes itself: attacking the ‘middle-classes’, maxing out the country’s credit card, stifling economic growth and private investment through higher taxes. To what extent you buy any of that depends on your political affiliation and your taste in Laffer curves.  

Labour is fairly relaxed about the likely negative reaction to its budget from the press. What will be of greater concern will be whether the overall economic strategy works; how it aligns with the overall political strategy; and the reception to all of this from the key audiences of the markets, the voters and Labour MPs.  

Economically, Rachel Reeves’s balancing challenge on Wednesday is to

• carefully plug the huge spending hole through tax rises,
• keep the UK competitive enough to generate vital long-term economic growth,
• free up enough borrowing to improve UK infrastructure,
• retain economic credibility from the markets,
• avoid any dangerous reversal of the trend towards lower inflation and interest rates,
• deliver enough extra investment in public services that will make a tangible improvement in people’s lives.  

Compared with all this, the politics should be easy.