Deep fear and scepticism as Rachel Reeves prepares for her big Budget moment

It’s been a long time coming. If you think this Budget has been going on for many years, you are right.

Not just because, by one senior MP’s count, 13 – yes, 13 – different tax proposals were put forward by the government before final decisions were made public.

Or because of the growing pile of reports from different think tanks or research groups that offer useful suggestions that also make headlines.

But because the budget process itself has actually been going on for months.

In July, Chancellor Rachel Reeves held an initial meeting with her aides at the Treasury office to begin planning.

“Everyone was getting ready to open Excel,” an aide recalled, but Reeves explained that he didn’t want any spreadsheets or Treasury scorecards.

Instead, he wanted to start by trying to figure out how to track his top three priorities, which he had scribbled on A5 Treasury paper.

Next week will stick to the trinity: cutting the cost of living, shortening NHS waiting lists and reducing the national debt.

Messages to the voting public – and each contains an implicit message to strong financial markets: Control inflation, keep spending big on utilities, preserve long-term cash on things like infrastructure, and try to control spending to deal with the country’s big, thick pile of debt.

Reeves’ team is confident the Chancellor can tick all three of those boxes on Wednesday.

But there is deep fear in his party, and doubts among his rivals and the business community that Reeves’ second budget will be hampered by political constraints and contradictions.

Reeves himself will no doubt refer to the restrictions placed on him before he walked through door 11 as chancellor.

Huge debts. High taxes. Years of tight spending in some areas are leaving parts of public services worn out. Discussions about the past may weaken.

“Everyone accepts that we have inherited a bad position,” one senior Labor figure told me, “but it is right for people to expect things to improve.”

Some restrictions on Reeves’ elections are tighter because of Labor itself.

There is a commitment in the original election manifesto to avoid raising the three big taxes (income tax, National Insurance and VAT) and to avoid cuts to big earners of Treasury coffers.

So what is now recognized in most government circles as the real-world impact of the government’s initial doom-laden messaging is that things will get worse before they get better.

In last year’s budget, Reeves opted to leave himself with just £9bn of what was called his “earnings share”; in other words, some cash to support the government when conditions were harder than expected, which indeed happened.

Lord Bridges, a former Treasury minister, told the Lords: “This is not a fiscal buffer; it is a fiscal layer so thin and fragile that it breaks at the slightest touch.”

It was calculated by the Office for Budget Responsibility, the official number crunchers, that the economy was functioning less well than previously thought, leaving the Chancellor short on cash.

you can Learn more about what it means here.

The size of the debt the country currently carries means that markets do not want the country to borrow any more.

But perhaps most importantly, the limitations possible for Reeves on cuts, spending or borrowing stem from the biggest political reality at the moment: This government is very unpopular with the backbenchers and doesn’t always feel like it’s in the hands of the leadership.

Downing Street has already shown it is willing to abandon plans that could save huge amounts of money if the rank and file start off strong enough.

Prime Minister Sir Keir Starmer and Reeves forced to abandon cuts winter fuel assistance To prosperity in 2024 and early this year. There is also the expectation that extra money will be on the way.

A senior MP told me: “They need to increase headroom, do something big on energy costs and do something about the remaining soft part. [the] hat with two children “They marched people up the hill.”

It will be expensive, but Labor MPs expected at least some restrictions on benefits for large families to be reversed and help with energy bills.

For some members of the government this is very, very frustrating. One of them told me that the Labor backbenchers “want everything for free, we should be adults driving the cars, not kids in the back.”

On Friday, as Reeves got the final numbers on his big budget moment, multiple sources pointed to other government decisions that made his job harder; these are areas where Labor has contradicted or confused, or even undermined, its own ambitions.

In some cases, the chancellor, supported by the prime minister, will say that keeping the economy growing, helping business is their absolute number one priority.

But their early choice to make it more expensive for companies to hire extra staff by increasing National Insurance was seen by many firms as a sign in the opposite direction, with many reporting that more expensive staff costs were making it much harder to grow their business.

Ministers may have talked about their hopes of reducing regulation: with more than 80 different regulators making rules, you can see why.

But significant new protections are being introduced for workers, which means more rules.

Labor has preached political stability after years of Tory chaos. We are not, at least not yet, in an area where the party is rapidly rotating among prime ministers.

But endless restructurings at No 10, public questions about Sir Keir’s leadership and feverish speculation about upcoming budget decisions do not match Sir Keir’s stated ambitions to end the drama.

There are also details. The last time Transportation Secretary Heidi Alexander appeared on the show promises more help for consumers to buy electric carsmakes them cheaper to own.

But as Alexander prepared to return to the studio, the chancellor Adding a new pay-per-mile fee for electric vehiclesThis will make it difficult to meet them.

Talks continued in Whitehall late on Friday on whether to make taxes on oil and gas companies less draconian, with some ministers discussing softening the edges to ensure companies do not pull out of the North Sea and take future investments in renewable energy elsewhere.

The paradox is that Labor is promising savings on bills and thousands of jobs on offer if energy companies move faster to green energy.

But the tax they raised last year could drive away some of the same companies, and with it the promise of future growth. No government has complete policy purity in general.

In an organization that spends more than a trillion pounds a year and makes thousands of decisions every week, it is foolish to imagine that they can all align perfectly towards a wider goal.

But even on Sir Keir’s own side, as we have talked about many times, the common complaint about this government is that its overall purpose is unclear.

A frustrated senior told me recently that they sometimes wonder: “What are we all actually doing here?”

Pressure from markets means it is difficult for the chancellor to borrow more. Labor backbenchers will be allergic to any major spending cuts. And big tax increases are not at the top of the list for a restive population with an unpopular government.

The realities of politics can often make it difficult for governments to make smart economic choices. The realities of the economy can often make it difficult for governments to make the best policy decisions.

On Wednesday, Reeves will need to credibly combine the two with a series of options that will shape the future of this troubled government.

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