The pitch had been rolled; far later than some in government wanted but it had been rolled. For months Labour has been preparing to break its manifesto pledge not to raise income tax.
At the party’s conference a solemn insistence by Keir Starmer and Rachel Reeves that they would keep their word became a milder declaration that “the manifesto stands”. A month later at PMQs, Starmer declined to say that it stood at all.
Then 10 days ago, Reeves delivered a speech at No 9 Downing Street where, channelling Lord Kitchener, she declared that “each must do our bit”. In case this wasn’t clear enough, the Chancellor told BBC Radio 5 Live just four days ago: “It would of course be possible to stick with the manifesto commitments. But that would require things like deep cuts in capital spending”.
What everyone – MPs, the media, the markets, the OBR – had been primed to anticipate was a “two up, two down” Budget. Reeves would raise income tax by 2p while cutting National Insurance by the same amount. This would break Labour’s manifesto pledge but give the Chancellor the revenue that she needed to expand her slight fiscal headroom and prevent large public spending cuts. UK borrowing costs, which had remained stubbornly high, fell to their lowest level since July.
Yet now, as the FT revealed last night, this plan has been torn up. Faced with the reality of breaking its defining pledge, a government enduring record unpopularity appears to many to have blinked. Some Labour MPs, who likened the plan to the Liberal Democrats’ broken tuition fees promise, are relieved. “The idea that they would even think they could get away with breaking the pledge is extraordinary,” says one senior backbencher.
But elsewhere in Labour, there is dismay. “All pain, no gain,” surmises one government source, another describes it as an “upset everyone, please no one Budget”. Starmer and Reeves have advertised their willingness to break their word but will now not enjoy the benefits of doing so.
In place of the broad-based tax rises that were planned, the Chancellor will now be more reliant on a “smorgasbord” of smaller and less reliable revenue raisers such as a gambling levy and new property taxes. Reeves is also expected to extend the freeze in income tax thresholds, a measure that will still expose Labour to the charge of penalising “working people”.
Yet is there method in what some view as madness? Treasury sources confirm a report by Bloomberg’s Alex Wickham that the decision was made after an improved economic forecast from the OBR put the fiscal black hole at £20bn rather than the anticipated £30bn (whether the Chancellor received the Round 4 forecast, which was sent to the Treasury on Monday, before or after her 5 Live interview has not been confirmed).
Reeves will now seek to tell a story of an economy defying the most pessimistic assumptions. And a formal manifesto breach that some warned would make her position untenable has been averted. Plenty will still regard this as a missed opportunity, but a Budget that MPs warned would be politically toxic may now be less dangerous for Starmer and Reeves.
This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here
[Further reading: Morgan McSweeney is losing control]
Content from our partners
Related
