Fast forward 35 years, and tomorrow sees Labour’s first Budget in power since 2010. Yet, the Government – just like President Bush – finds itself in a tangle over promises on tax made during the election. This time, specifically on Labour’s manifesto commitment to not increase taxes on ‘working people’, leading to the Prime Minister’s attempts at the weekend to clarify what exactly was meant by the phrase. 

Boxed In

But this argument about tax neatly captures Labour’s conundrum. During the General Election campaign, much was made of the challenging financial inheritance facing the next government. Yet, simultaneously, Labour also committed to kickstarting growth, increased infrastructure investment and improving public services. Both require large boosts in spending, leaving Labour a very difficult circle to square.

Compounding matters, Labour’s brittleness in the heat of the election campaign under only modest pressure from the Conservatives saw changes to a whole sweep of taxes ruled out. While in private the Tories almost certainly knew the election was lost, they still played a canny long game by boxing Labour in as much as possible, making their job in government of managing the nation’s finances magnitudes harder.

Spooked MPs

And as we head towards Wednesday’s Budget, that’s where we find ourselves – election promises on tax and spend coming back to haunt Labour, rather fittingly given it is almost Hallowe’en. Compounding matters, with Labour’s backbenchers spooked by dramatic falls in the Government’s and Keir Starmer’s poll ratings, much now rests on the sorcery of the Chancellor, Rachel Reeves. The pressure is on for some instant, retail-friendly announcements to boost the Government’s popularity – which potentially clash with any focus on long-term interventions to boost growth.

Taxing Times

Whether it will be a trick or treat Budget will depend on your point of view. Labour will argue that money is needed to pay for the £22bn black hole, billions more reportedly needed just so public services can stand still and the tens of billions earmarked for infrastructure. Reeves has confirmed some jiggery-pokery of the borrowing rules, freeing up to £50bn for capital projects. But even with this, tax rises look inevitable.

In every fiscal event following an election since 1992, taxes were increased. There’s a political logic to it – new governments needing to fill a hole in the finances or generate more money to pay for manifesto promises. The hope is that the electorate will have forgotten about paying more tax by the time of the next election, or even better, taxes can be cut at the end of the parliament just as voters go to the polls.

Might we see a tax rise tomorrow greater than the £33bn (in today’s value) Norman Lamont oversaw in 1993? It might well do, and there’s been a lot of talk about certain taxes – hints of an increase in fuel duty and employer National Insurance contributions married to frozen income tax thresholds. Whether increasing employer – rather than employee – NI contributions busts Labour’s manifesto commitment not to raise taxes on ‘working people’ might end up being 2024’s ‘no new taxes’ moment. But as is often the case with Budgets, the trick will be how stealthily taxes are raised and how deep they’re buried in the detail.

A Downpayment

Tomorrow’s Budget is a major political moment for the Government, but so is the Spending Review which will report in the Spring. The Spending Review will set three-year capital settlements for Government departments, and so the Budget is in many ways a stepping stone on the way to next Spring.

In the last few days, money has been announced for the NHS, but big bucks items like the New Hospital Programme look like waiting until next year. Similarly on education, we’ve seen confirmation of extra funding for crumbling schools.

Housing is another key area of focus for the Government, and last week saw an extra £500m for affordable homes, described by Housing Secretary Angela Rayner as a ‘downpayment’ – thus the assumption being that much more will be forthcoming in the Spending Review. Let’s hope the Treasury signed off on the wording, otherwise they’ve been bounced into coughing up more money for Rayner in six months’ time.

Building Things

The other big-ticket items to watch for on Wednesday will be whether the Chancellor green lights any major infrastructure projects, particularly transport. Fevered speculation is that HS2’s final stretch to Euston will get the go ahead, perhaps with a full rebuild of the worn out 1960s station to boot. The question here will be what the funding vehicle is to pay for a shiny new Euston, and will it see the establishment of the second Mayoral Development Corporation in London (after Oxford Street) in the space of two months.

But will London see anything more than this? The city’s shopping list is long – Bakerloo Line Extension, DLR extension to Thamesmead, West London Orbital, new trains for the Bakerloo Line, new signalling. My gut tells me all might have to wait until the Spending Review and even then it’s unlikely London gets all it wants given other pressures on the public purse. It will be politically challenging for this government to splash the cash on London ahead of other parts of the country, just as it was for the last government.

Keeping the Town Hall Lights On

Barely a day passes without more woe from local authorities about pressure on budgets – and, in London’s case, the exponential growth in the cost of temporary accommodation. Few expect fundamental reforms to how we fund local councils in Wednesday’s Budget – but many would be surprised if a financial lifeboat isn’t headed the way of town halls, if not merely as a way of preventing a rash of s114s – effective bankruptcies – early in 2025.

Budget Traditions

Chancellors over the years have loved a rabbit out of the hat – the unexpected eye-catching final announcement not briefed in advance. Last Spring, Jeremy Hunt surprised many when he wrapped up his statement without producing any such rabbit. Briefing suggests we’re not to expect one tomorrow – has this tradition gone the same way as Chancellors being allowed their favourite alcoholic tipple at the Despatch Box? Given how much of the content for tomorrow’s Budget appears to have been briefed in advance, there might not be much left to hold back as a surprise.

Swansong

One small aside about the Budget – traditionally, the Leader of the Opposition responds to the Chancellor’s Statement. That job will fall to Rishi Sunak (remember him?) in what may well be his last major appearance before the Conservative Party chooses his successor just three days later. One can’t help but think he’d rather be anywhere else than sat on the green benches come 12:30pm tomorrow. We will soon know what direction the Tories go under their next leader – and how they respond to Labour’s Budget.