Budget Backlash: Reeves in the Firing Line

Introduction

Chancellor Rachel Reeves delivered her second Budget Statement last week, returning to raise taxes – despite promising last year that she wouldn’t – and pushing the tax burden to a record high. Widely seen as the most pre-briefed Budget in history, much of the content was leaked to the press in advance, leading the Deputy Speaker to condemn the Government for an ‘unprecedented’ volume of media briefings.

The Budget Backlash

No amount of spin can hide the fact that this Budget increased taxes on working people. While headline rates of income tax, national insurance, and VAT remained unchanged, the Chancellor froze income tax thresholds for an additional three years – a move what will raise an extra £7.5bn for the Treasury and drag 5.7m more people into the higher-rate tax bracket by 2031 compared to 2022.

This came in direct contradiction to Reeves’ pledge just one year ago not to raise taxes again. Her defence was that these decisions were ‘fair but necessary’. One key policy floated in the run-up was a 2p increase in income tax offset by a 2p National Insurance cut – but was apparently scrapped a week before. Markets were somewhat calmed, but the political fallout was already underway.

At the heart of the controversy is Reeves’ claim of a £30bn ‘black hole’ in the public finances. It has since emerged that the Office for Budget Responsibility (OBR) had written to her on 31 October projecting a fiscal surplus of £4.2bn – information not shared with Cabinet colleagues or the public. The OBR has also publicly stated it warned the Treasury about briefing ‘misconceptions’ ahead of the Budget.

Built Environment Implications

Beyond the political drama, the Budget saw decisions that disappointed some across the built environment sector, although more generally there’ll have been a sigh of relief given it could have been a lot worse. Hopes for stamp duty reform (or even abolition) – particularly to support first-time buyers – were dashed, despite continued affordability challenges. Meanwhile, the new ‘mansion tax’ threshold of £2m will disproportionately impact London and the South East and could yet impact on the housing market. Business rate reform offered some relief for hospitality operators, but it came at a cost: higher bills for many businesses in inner London, especially those already contending with rising overheads.

Fiscal Rules, Political Tools?

The situation Reeves finds herself in is, to some extent, one of her own making. Her pursuit of meeting self-imposed fiscal rules has shaped the Budget’s design – and the controversy around it. Those rules will now be met, with the Budget increasing fiscal headroom from £9.9bn at the Spring Statement to £22bn. The Government is now forecast to run a surplus by 2028-29, thereby satisfying Reeves’ ‘stability rule’ of balancing day-to-day spending with revenues by the end of the decade.

But this speaks to a wider problem. The UK’s fiscal rules have been changed nine times in the past 16 years. When rules can be revised, redefined, or selectively applied to suit the political and economic context of the moment, their purpose becomes increasingly unclear. Are they serving as genuine guardrails or simply flexible political tools? Arbitrary fiscal rules that are endlessly chopped and changed to deliver pre-set outcomes ultimately lose their meaning – undermining transparency, credibility, business confidence, and public trust.

Political Consequences

On Monday, the Prime Minister attempted damage control, insisting at a press conference that Reeves had not misled the public. He even went as far to say he was ‘proud’ of her Budget, which he framed as a plan to reduce child poverty and tackle the cost-of-living. 

But the optics are not necessarily all in Labour’s favour. Scrapping the two-child benefit cap – a policy which Labour previously suspended seven MPs for voting against just over a year ago – is estimated to cost £3bn annually by 2030-31. Some critics argue this Budget taxes working people to pay for Britain’s ballooning welfare bill. Had welfare spending been returned to pre-pandemic levels, it could have saved up to £47bn annually within five years.

Reeves and Starmer were already the most unpopular Chancellor and Prime Minister in modern polling history before this Budget. Now, 57% of voters believe Reeves should resign. Nearly two-thirds say freezing the tax thresholds breaks Labour’s pledge not to raise taxes on working people. Worse still for the Government, nearly half now blame Labour, not the previous administration, for rising taxes.

Confidence in the economy has also taken a hit. Business sentiment is at its lowest level since the pandemic, and both investment and hiring intentions have dipped to near-record lows. One recent poll showed voters trust Jeremy Corbyn and Liz Truss more than Reeves to manage the economy.

As a symbol of deeper dysfunction, Richard Hughes, Chair of the OBR, has resigned following an internal probe into the leaking of key documents before the Budget Statement, revealing the policies that were set to be announced.

All Eyes on May 2026

Despite the fallout, Reeves has clung on. She says she is “absolutely confident” she will still be Chancellor at the next election, telling the media: “you’re not going to write my obituary.”

But it may not be the media that writes it – it could be the voters. The May 2026 local elections will, whether the government likes it or not, be a de facto referendum on Labour’s economic credibility. Reform UK is expected to make significant gains, as they did in 2025, and the Green Party is gaining ground in traditional Labour areas – including parts of inner London.

The latest polling tells a stark story for Labour: Reform UK is on 31%, Labour on 18%, with the Conservatives and Greens close behind on 17% and 16% respectively. Leadership rumblings are already underway, with Andy Burnham, Wes Streeting, and Angela Rayner all touted as potential successors. A trouncing in May would likely prove fatal for Starmer – and Reeves.

What to Watch

Will Rachel Reeves survive to deliver a third Budget? Possibly. But the damage to her credibility may already be done. With economic trust eroding and Labour’s polling falling, May 2026 will be a critical moment – not just for Reeves, but for the future of Starmer’s leadership.