As Rachel Reeves faces her biggest test, our panel of experts and commentators respond to the 2025 Budget.
Louise Haigh
In the New Statesman I argued that the UK is trapped in a fiscal straitjacket – and today’s Office for Budget Responsibility (OBR) leak before the Chancellor’s statement is just the latest in a long line of reasons that shows our economic machinery is in urgent need of serious reform. Today’s Budget is a welcome step forward. By taxing wealth, assets and unearned income more fairly, while protecting working people, the Chancellor has set out a progressive, credible approach rooted in Labour values and economic reality, showing clearly who this government stands up for.
And by scrapping the two-child limit, the government has taken a morally right and economically sensible step to tackle the single biggest driver of rising child poverty and restore opportunity for thousands of families. If followed through, this Budget can mark the beginning of genuine national renewal rather than short-term repair, and help rebuild the foundations of a fairer, more resilient economy.
Louise Haigh has been the MP for Sheffield Heeley since 2015
Mariana Mazzucato
This Budget made welcome progress. Removing the two-child benefit cap will lift 450,000 children out of poverty, whilst expanding free school meals and other changes will benefit 100,000 more. Public investment has reached its highest level in 40 years – a significant shift from decades of underinvestment.
But what we need now is clarity on how this investment drives transformation. The UK’s economic stagnation stems from chronic underinvestment – for 24 out of 30 years, the lowest total investment in the G7. Investment in transport infrastructure is welcome, but it must be explicitly linked to clear missions. The government’s Clean Power mission demonstrates how this works: by setting a bold, measurable goal, it creates a co-ordination mechanism that crowds in private investment at scale while delivering lower bills and energy security. This same logic must now be applied across other grand challenges – to make the government’s investment greater than the sum of its parts. Bold, clear goals give markets direction while mobilising state capacity. That’s the engine for investment-led growth.
Mariana Mazzucato is the author of Mission Economy, a professor at UCL and the founding director of the Institute for Innovation and Public Purpose (IIPP).
James Meadway
For a Chancellor who sets such store in stability and certainty, Rachel Reeves likes a gamble. Her first Budget, back in October 2024, took a huge punt on a £23bn National Insurance contribution increase, paired to a very substantial increase in public spending, betting on a miraculous return to growth over the next 12 months. This year, the Chancellor has bet the farm on a £13bn increase in her “headroom” – the amount of extra she could spend, but chose not to, without breaking her notorious and self-imposed fiscal rules. This has now risen to £22bn, with a combination of higher inflation and a freeze on income tax thresholds doing much of the heavy lifting to get past paying for spending-cut reversals and get there.
The thinking, we can assume, is to avoid the instability that has marked the economy this year. With this headroom so limited after last year’s Budget, and with a Chancellor so attached to her fiscal rules that they will only go if she does, the country’s entire fiscal framework was left dangerously exposed to even slight economic wobbles. It’s this that helps explain the shakiness of the government’s position over the past year – a shakiness that was amplified by financial markets, trading on the government’s position, and translated into broadly higher interest rates for all of us, including the government itself.
Will it work? The leak of the entire Budget, thanks to what seems to have been an extraordinary error by the much-criticised OBR, doesn’t suggest a government entirely on top of events, and comes at the end of a hurdy-gurdy run-up to Budget day itself. But perhaps more important is what the OBR itself says: noting that the increase, though large, still leaves the government with a lower headroom than before the pandemic, and a 40 per cent chance of failing to meet its own rules. A few shocks next year and we’ll be right back to where we are now.
James Meadway is an economist. He hosts the weekly economics podcast, “Macrodose”
Ruth Curtice
Today’s Budget feels somewhat divorced from the fevered, gloomy speculation that preceded it. The huge economic downgrade we were warned about came in at a modest £5.5bn. To her credit, the Chancellor used this to improve the public finances. The £30bn of tax rises leave her with more than double the wiggle room and allowed her to take decisive action on the cost of living, albeit much of the consolidation is promised for delivery only from 2028.
Expect plenty of complaints from landlords, the owners of mansions, dividend holders, and those able to make big, tax-advantaged pension savings. Let their howls be drowned out by the half a million children who will be lifted out of poverty as a result of today’s Budget.
Ruth Curtice is the chief executive of the Resolution Foundation
Morgan Jones
As a series of reports and articles in the New Statesman make painfully clear, Keir Starmer and Rachel Reeves could hardly have gone into this Budget in a worse position politically. The OBR leak, judging by Reeves’s face alone, did not help matters.
In better political weather, one could imagine this Budget landing well. The two-child limit has been the most bitter pill for Labour MPs to swallow, and that it has been lifted will allow them to say they are doing Labour things, the things they were elected to do. Similarly, they will welcome the mansion tax (although given the sheer size of the Parliamentary Labour Party, with Labour MPs representing wealthy areas unlikely to relish this policy, not everyone will cheer this quite so enthusiastically) and various other measures such as the miners’ pension scheme changes.
Despite these positives for Labour MPs, it seems hard to imagine that this Budget will dramatically shift the dial for Starmer and Reeves among their wildly dissatisfied ranks. It will, however, help reduce child poverty in the UK, which is what Labour members and MPs will want to concentrate on.
Morgan Jones is a contributing writer to the New Statesman and the co-editor of Renewal, a quarterly magazine
Parth Patel
A few minutes before the Chancellor began to speak, the BBC’s economics editor was excited to discover a policy innovation in the OBR’s advanced reading: the government could itself reduce inflation. By fixing or reducing the prices of trains, energy and medicines, inflation forecasts have been revised downwards, a power otherwise bestowed to the Bank of England. This seemingly trivial feature of the Budget disguises the ongoing paradigm change in political economy: a weakening faith in the pricing mechanism, the blurring of fiscal and monetary distinctions and a new role for the state in the economy. This time last year, we should remember, the Chancellor spoke mainly about borrowing to build infrastructure that drives and distribute growth, rather than taxing to expand services that redistribute it. This is a new era of state capitalism.
The headlines however are firmly fixed on tax. The Chancellor announced a series of changes that raise revenue without rebellion. No doubt, many of the decisions are the outcome of compromise and electoral calculation. So there are contradictions, such as taxing electrical vehicles while trying to encourage more people to drive them, and taxing pension contributions while trying to encourage “retail” investing. But there are also good, social-democratic policies to increase taxes on passive and unearned income (such as rent and dividends), on household wealth over £2m and lift thousands of children out of poverty. In the end, politics is not so complicated. Labour will be Labour, and should double down on being Labour.
Parth Patel is the associate director for democracy and politics at the Institute for Public Policy Research
Faiza Shaheen
For all the government’s talk of the cost of living, it is a glaring contradiction that the biggest revenue-raising measure in this Budget was a freeze on personal tax thresholds. This places the responsibility on ordinary people to contribute more tax, while the extreme wealth of the super-rich remains largely untouched. Increasing taxes on investment and savings income is positive, but it falls short of taxing income from wealth the same as work. The same applies to the introduction of a mansion tax, which will raise relatively small sums, while adding complexity to an outdated and confusing council tax system. The whole thing feels confused and uncertain, underpinned by an approach that more of the same will magically achieve growth. All the while, wholesale changes were needed, with taxes targeted at those who have wealth beyond normal comprehension. The Chancellor needs to grasp the nettle and find the courage to tax the super-rich to invest in Britain at the scale required to rebuild the country’s foundations and improve lives.
Faiza Shaheen is an economist and community campaigner
[Further reading: The Budget of last resort]
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