In the much-anticipated fiscal update—marking the first under the centre-left government after 14 years of Conservative rule—Finance Minister Rachel Reeves stated that tax hikes would generate an additional £40 billion ($52 million).
During a speech to Parliament lasting over an hour, Reeves confirmed modifications to fiscal rules that would enable the government to invest billions more in public services.
“This government was given a mandate,” she told MPs. “To restore stability to our country and to initiate a decade of national renewal. The only way to drive economic growth is to invest, invest, invest,” she emphasized.
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Labour secured a landslide victory in July’s general election and had already introduced a series of economic initiatives, including enhanced workers’ rights, increased minimum wages, a substantial green energy plan, and mass housing development.
However, prior to the budget, the government faced backlash for eliminating a winter-fuel benefit scheme for millions of pensioners, which negatively impacted Starmer’s approval ratings in polls.
“I am restoring stability to our public finances and rebuilding our public services,” Reeves stated on Wednesday.
She noted that £25 billion would be generated from an increase in employers’ national insurance—a payroll tax contributing to social care funding.
As Reeves spoke, the pound regained some strength, while London’s stock market remained relatively stable. “At this stage, massive tax rises have not spooked financial markets,” remarked Kathleen Brooks, research director at traders XTB.
The government upheld its commitment not to raise income taxes, employee national insurance charges, or value-added tax.
Outgoing Tory leader Rishi Sunak, the former prime minister, criticized the budget as containing “broken promise after broken promise,” accusing the government of imposing “a tidal wave of anti-business regulations.”
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Prior to outlining her tax and spending plans, Reeves made a technical adjustment to the measurement of UK debt, allowing for increased borrowing, despite public sector borrowing levels matching those seen in the 1960s.
To encourage investment, the Chancellor will adopt a broader measure of debt that considers future returns on investment.
Reeves stated that the additional investment in capital infrastructure projects would begin to “repair the fabric of our nation.” The government plans to allocate billions to rebuild schools, hire teachers, and fund childcare.
In a surprising move, she announced an extension of the freeze on fuel duty until next year.
The cash-strapped National Health Service will also see a significant boost, with a near £23 billion increase in its day-to-day health budget.
However, Paul Johnson, director of the Institute for Fiscal Studies, cautioned about the implications of increased borrowing. “The challenge will be to ensure that the money is spent effectively enough to justify those costs,” he stated.
Alongside the budget, Reeves indicated that Britain’s economy is poised to grow faster than previously forecasted this year and next.
The nation’s gross domestic product is projected to expand by 1.1 percent in 2024 and by 2.0 percent the following year—outpacing estimates made by the Office for Budget Responsibility (OBR) in March.
Britain is benefiting from a decrease in its annual inflation rate to below the Bank of England’s 2.0 percent target, alleviating some aspects of the cost-of-living crisis. The International Monetary Fund also predicted a 1.1 percent growth for Britain’s economy in 2024.
Looking further ahead, the OBR on Wednesday revised down its growth forecasts for the period from 2026 to 2028.
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