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Chancellor Rachel Reeves’ much-anticipated first Budget speech is finally upon us, taking place on Wednesday this week (30 October).
It is the first Budget to be presented to the House of Commons since Labour’s election win earlier this year, and could well set the tone for the new government’s first years in power. Reeves has warned that “difficult decisions” will have to be made, accusing the previous Conservative administration of leaving a £22bn black hole in the public finances.
But given the Labour leadership’s insistence that there will be no tax rises for “working people” – including no raises to VAT, income tax or national insurance contributions (NICs) – how will she go about plugging this gap? And how will businesses that trade internationally be affected?
We today preview five key areas to look out for on Wednesday.
Employer National Insurance Contributions
While Labour has pledged to not raise NICs for “working people”, a footnote in its manifesto reportedly suggests that this promise only applies to employees, according to the BBC’s economics editor Faisal Islam.
Indeed, it is now being widely reported that Reeves will raise NICs for employers, attracting ire from various business groups, including the Federation for Small Businesses (FSB).
FSB’s executive director Craig Beaumont recently told City AM:
“Increasing employer NICs would mean breaking a Labour manifesto promise, and small businesses would be rightfully outraged.”
“Adding employer NICs to pension costs would be one way of shrinking small business employment even more in 2025 – the precise opposite of what we all want and need to see if we are to get economic growth up and running.”
Reeves has defended the potential move, telling Islam that she had not foreseen the extent of the “black hole” in public finances, while also citing compensation payments for the infected blood and Horizon Post Office scandals as a factor.
Fiscal rules
Ahead of the Budget, Reeves has confirmed that she will change some of the spending and fiscal rules that she has inherited from the previous Conservative administration, which “could release as much as £50bn for infrastructure spending”, according to the Guardian.
“There has been a lot of speculation since the election about how Rachel Reeves might change the fiscal rules,” the Institute for Government (IfG) has said.
“There are lots of problems with the rules she inherited from Jeremy Hunt and a good case for a change of approach. And the Labour manifesto emphasised in particular the importance of striking a ‘balance between prioritising investment and the urgent need to rebuild our public finances’.”
However, Reeves has been warned against “tinkering” too much with borrowing rules by Nick Winters, a partner at tax accounting and advisory firm Blick Rothenburg. He told City AM:
“This proposal gives the impression that Labour is tweaking a large spreadsheet to attempt to meet all of their promises. But unlike a spreadsheet, there are only so many tweaks our economy can take before it crumbles.”
Mervyn King, the former governor of the Bank of England, has also warned that “higher borrowing means higher borrowing”, telling Sky News:
“Financial markets and people who lend to the government will demand a slightly higher interest rate to compensate for the higher amount of debt that they’re being asked to finance.”
Freeports or customs sites within freeports?
Reports from the end of last week that the Chancellor would announce five new freeports as part of the Budget have since been clarified, with it now appearing to be the case that five new customs sites within freeports are instead going to be confirmed.
A government official told the BBC on Sunday that there had been a “cock-up with the comms”, resulting from confusion between what freeports are and the role of customs sites within them.
Some of the freeports established by the previous Conservative administration have not yet become operational due to not having “designated” customs or tax sites within them. Reeves will look to address this by establishing five new customs sites within existing freeports, including the Port of Inverness, the Humber and Liverpool.
Plans for a separate investment zone in the East Midlands will also be confirmed.
Growth and investment
Growing the economy is one of the Labour government’s five core missions and this week’s Budget will be accompanied by the Office for Budget Responsibility’s (OBR) latest economic forecast.
“Any improvement in the outlook will increase forecast tax revenues and give the chancellor more room for manoeuvre against her fiscal rules – and allow her to claim progress on the government’s mission to boost growth,” write the IfG.
“Any deterioration, of course, will do the opposite.”
The IfG adds that people should keep an eye out on “what effect the OBR thinks any new policies will have on growth”, noting that the Budget is the first major opportunity for the new government to “announce measures that will help achieve its growth mission”.
On investment, the IfG adds that it will be interesting to see any indications as to how the new National Infrastructure and Service Transformation Authority (NISTA) will operate. The authority was recently announced by chief secretary to the Treasury, Darren Jones, and aims to “fix the foundations of our infrastructure system”.
Support for traders?
The government’s new industrial and trade strategies are also attracting a lot of attention and anticipation from the media and business as well. With public consultation ongoing, the publication of these strategies isn’t expected until early next year.
However, measures around investment and business support in this week’s Budget could nonetheless provide an early indication of how the government will look to back businesses that trade internationally.
The Chartered Institute of Export & International Trade’s director general, Marco Forgione, wrote to the Chancellor at the end of last month with two a number of key asks for the trading community, including investment in skills and support for businesses to adopt the latest, cutting-edge trade-enabling technologies.
“If we wish to see sustained, long-term growth in the UK, this will begin with supporting our business community to trade more effectively and competitively,” he wrote.
He also called on the government to better enable trade between the UK and EU through the establishment of a “digital trade corridor”.
“This would reduce friction, increase visibility for UK and EU authorities and agencies, allowing much better targeting of stop and check, significantly lowering the cost of trade and increasing resilience.”
