UK Labor government’s first budget expects spending and tax hikes

LONDON – British Treasury chief Rachel Reeves will present her first budget to Parliament on Wednesday. It’s a difficult bill that aims to find billions to invest through borrowing and tax hikes without disrupting businesses or raising taxes on workers.

This is the Labor government’s first budget in almost 15 years and the first budget presented by a female finance minister. That could set the tone for the duration of the current parliament, which runs until 2029, and the party’s ability to win a second term in the next election.

Reeves, who emerges from her office at 11 Downing Street with her famous red briefcase containing the budget, has a difficult balancing act.

She promised to put “more pounds in people’s pockets”, give a much-needed financial boost to public services such as schools and hospitals and boost the economy. All this has to be done in the context of limited public finances, which the government says are in much worse shape than expected when it was elected in July.

Prime Minister Keir Starmer warned the budget would reflect the “hard light of financial reality” but would not return to the austerity measures that marked the early years of the previous Conservative government after it was first elected in 2010.

The center-left Labor Party was elected on July 4 after promising to end years of turmoil and scandal under Conservative governments, grow Britain’s economy and restore crumbling public services, especially the publicly funded National Health Service.

The centre-left government argues that higher taxes and limited increases in government spending are needed to “fix the fundamentals” of an economy it says has been undermined by 14 years of Conservative government rule.

Conservatives say they left an economy that was growing, albeit modestly, with lower debt levels and smaller deficits than many other wealthy Group of Seven countries.

Pumping money into health care, education and housing is the new government’s priority, complicated by a sluggish economy held back by rising public debt and low growth. The government also says there is a 22 billion-pound ($29 billion) “black hole” in public finances left by the Conservative government.

That means the Budget is certain to include tax rises, although Labor has pledged not to increase the tax burden on “working people” – a term whose definition has been hotly debated in the media for weeks. The Treasury announced that around 3 million of the lowest paid workers will receive a 6.7% pay rise next year, with the minimum wage rising to 12.21 pounds ($15.90) ​​an hour.

Reeves, Britain’s first female chancellor of the exchequer, a position that dates back about 800 years, is expected to change public debt rules so she can borrow billions more to invest in the health system, schools, railways and other major infrastructure. projects and raise money by raising taxes paid by employers but not by employees.

“The UK is at a critical juncture: after years of sluggish growth and deteriorating public infrastructure, sustained growth in public investment is vital to promoting long-term economic growth and rising living standards,” said Monica George Michael, an economist at the independent think tank. tank National Institute of Economic and Social Research.

While this budget promises to be one of the most important in years, Reeves will undoubtedly be careful not to cause concern in financial markets. Liz Truss’s short-lived premiership collapsed two years ago after a series of unfunded tax cuts roiled financial markets and sent borrowing costs soaring. Her successor, Rishi Sunak, sought to take control of the public finances but failed to challenge the perception that the Conservative Party had lost control of the economy, perhaps the main reason it suffered its worst election defeat in 200 years.

The UK’s borrowing costs in markets have risen ahead of the Budget announcement, indicating some concern about the path ahead.