UK Budget 2025: Why Chancellor Rachel Reeves' surprisingly confident performance offers fresh hope for Labour
Rachel Reeves performed stolidly but well, and may have laid the groundwork for feel-good Budgets ahead of the next election
Traditionally, it is the Chancellor of the Exchequer who unveils the UK Budget for the financial year ahead. On this occasion, Rachel Reeves was beaten to the punch by the government’s own fiscal watchdog, which accidentally published all the details an hour before she took to the Despatch Box.
It meant the details of the Budget, including tax rises and flagship policies, were revealed in the BBC’s preview coverage rather than the House of Commons. It was an astonishing and unprecedented blunder by the Office for Budget Responsibility (OBR), and a fizzing Ms Reeves was quick to describe it as “deeply disappointing”.
She would have been well-advised to laugh off the error as wittier Chancellors of the past may have. Instead, she ploughed on stern-faced with the gritty detail, even though the live television news headlines were already carrying the details of what she would say.
That included a freezing of tax thresholds, so that incremental pay rises over a number of years would entrap more people in higher tax bands by stealth. The country’s foremost tax expert, Dan Neidle, described it as a “rubbish way to increase tax” but acknowledged it was popular with politicians because they couldn’t bear the act of actual hard tax increases.
UK’s fertility crisis
Fuel duty will go up in September, a shock to drivers of traditional vehicles who usually enjoy the freezing of such levies in Budget giveaways. Those who prefer to drive new-fangled electric vehicles will also be hit by a new mileage charge.
The overall objective from this Budget appears to be raising money not just to spend, but to reduce the deficit and improve the government’s ‘fiscal headroom’ for future years.
One eye-catching policy is the end to the two-child benefit cap. The controversial limit was introduced by the previous Conservative government, who didn’t think it was fair taxpayers should pay benefits to families beyond their second child.
Polling tends to suggest it is popular with the public, perhaps even more so now that the costs – which near £3 billion – have been revealed. Labour argue restoring the benefit to child three and beyond helps alleviate child poverty.
But there’s a more important strand to it all. Like all western countries, the UK is experiencing a fertility crisis – families simply aren’t having enough children to replace our existing population for future years.
That will have a major impact on the labour workforce who, in decades to come, will be expected to generate tax receipts to look after the expanding population of retirees. The sums are miles away from adding up.
Countries from Japan to Italy to Chile have all examined radical policies to reverse this problem, but none seem to have cracked the conundrum. By at least removing one obstacle in front of families who may consider having more kids, some progress could be made in improving the UK’s birth rate.
Getting ‘biscuit tin’ savers to invest in economy
Those checking their bank accounts for the child benefit payments will notice another change. Ms Reeves has long been frustrated about Individual Savings Accounts (ISAs), and how generations of Brits have squirrelled away their savings while enjoying generous interest payments.
She believes that while this “biscuit tin” approach is good for family savings, it deprives the economy of valuable investment injections, and could be better utilised. As such, she has reduced the amount a saver can put in from £20,000 a year to £12,000.
That remaining £8,000 allowance, for the under 65s at least, must be used in a riskier and less dependable way. Naturally, the big banks are on board with this, she added.
A less scrupulous form of investment is also being hit: gambling. New taxes on that industry will raise £1.1 billion, the government says. Small change to one of the UK’s richest, shadiest and shamelessly ethics-free sectors, whose unfettered exploitation of Britain’s most vulnerable males in the form of online gambling has gone unchecked for too long.
Bourbons and custard creams
Of course, the relevance of the UK Budget to Scotland seems to diminish each year. Announcements on schools, hospitals, roads and justice are basically irrelevant, given these are devolved matters which will learn their fates when the SNP government delivers its Budget in the new year.
In fact, the most notable Scottish contribution to this Budget was Labour MP Gordon McKee going viral by illustrating how debt-to-GDP works using packets of custard creams and chocolate bourbons in a quirky social media video.
But there was some good news for Scotland. Ms Reeves’ increased spending down south will trigger a payment to the Scottish Parliament of about £820 million. Apparently she decided on this dividend “because Anas Sarwar asked us to”.
Perhaps another Labour grandee was behind the next Scottish headline announcement. The £20 million to breathe life into Kirkcaldy’s dilapidated town centre will enhance the back yard of former Chancellor Gordon Brown.
Quite the turnaround for Reeves
Ms Reeves may have been rattled by the premature leaking of her Budget, but she soon steadied herself and delivered a confident if stolid performance. For an MP who was in tears on the front bench just four months ago as her record came under fire, it is quite the turnaround.
The reality is Labour’s tough decisions were made in last year’s Budget, taking the sting out of anything negative this time around. It will improve the prospects for good news in future Budgets, putting the party on a clever footing in time for the next UK election in 2029.
In her response, Tory leader Kemi Badenoch said this Budget “should be her last”. In truth, Ms Reeves is the one far likelier to still be in post next November.
Adam Morris is the former head of media for the Scottish Conservatives
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