As we head towards Christmas and the end of Starmer’s first full year in office, and with the Budget in the rear-view mirror, Redwood considers the political lay of the land, helping to cut the policy from the politics. We take a look back and argue that the Government is losing control of the narrative and needs to get it back on track if it is to stay in power past the next election. The vision that Labour is ‘selling’ the country is being lost, through a mixture of messaging and seemingly abandoned targets.
Rachel Reeves had repeatedly warned of a “£22bn fiscal black hole” inherited from the previous government and has used this narrative to justify Labour’s early approach of cautious spending, tight fiscal controls, and prioritising deficit reduction.
In her 2024 Budget, the Chancellor said that the tax hikes would ‘fix the foundations’, meaning that she wouldn’t have to come back asking for more. But unfortunately, as the Budget last week shows, this has not been the case.
The Chancellor on November 4th warned of “tough decisions” ahead, citing a £30bn fiscal gap and suggesting the Office for Budget Responsibility might lower the UK’s productivity outlook. This signalled that tax rises were almost certain in the upcoming Budget. However, the Government has been questioned on this over the last week, as according to the OBR, the true fiscal shortfall on September 17 was only £2.5bn, far less than the £30bn claimed by the Chancellor. OBR chairman Richard Hughes told the Treasury Committee that the Chancellor never faced a black hole exceeding £2.5bn and, according to him, the OBR upgraded its forecasts on October 31, informing Ms Reeves that the UK actually had a £4.2bn surplus despite lower productivity.
Political opponents have jumped immediately on this, with Leader of the Opposition Kemi Badenoch saying this was “Yet more evidence, as if we needed it, that the Chancellor must be sacked. For months, Ms Reeves has lied to the public to justify record tax hikes to pay for more welfare.” Even economists have questioned the validity of the Chancellor’s statements, with Paul Johnson, ex-chair of the Institute for Fiscal Studies (IFS), saying, “I think it [her November 4 press conference] probably was misleading.”
Whether deliberate or not, the dispute speaks to a deeper problem: trust. This trust needs to be felt not just by the electorate, who according to one study now trust Rachel Reeves on the economy less than Liz Truss, but also by the Chancellor’s own front bench. Cabinet Ministers are apparently furious that they were kept in the dark over the true financial situation the UK found itself in, and when the knives are already out, and the electorate are already looking at people such as Wes Streeting as potential successors to Keir Starmer, this is an extremely risky game to play.
One of the most contentious elements of the Budget is what wasn’t changed. While Labour had previously promised not to raise income tax, National Insurance, or VAT on working people, the Government has maintained the freeze on tax thresholds, a decision that effectively increases the tax burden for millions. This acts as a “stealth tax”, meaning that as wages rise with inflation, more people are being dragged into higher tax bands.
The Government has already played ‘fast and loose’ with its promise not to raise taxes on working people with the National Insurance rise last year. So, whilst on paper the promises are intact, in practice, take-home pay is truly being squeezed. Rachel Reeves so far is holding the line on the airwaves that this is a commitment the Government has stuck to, but it is often met with laughter, and it is this tension between rhetoric and reality that is drawing criticism from many voters up and down the country.
Shortly after the Budget, politicos began asking, “Which measure in this Budget will increase economic growth?” Well, it wouldn’t take long for us to find out, as the OBR analysis said that “none of the measures in the Budget will boost growth.”
In previous blogs, we have been clear that economic growth was Keir Starmer’s and Rachel Reeves’ first, second and third priorities. I like to think that in the run-up to Christmas, the Chancellor has even asked Santa for some economic growth, but if this Budget is anything to go by, it won’t be unwrapped from under the tree anytime soon.
So why has the Government allowed its second Budget since 2010 to fall so flatly on the electorate? Well, in the weeks leading up to the Budget, reports emerged of growing frustration among Labour MPs, particularly with the rumoured rise in income tax. The pressure on the Chancellor from her own party was growing.
This Budget appears to be a response to that pressure. After the failed cuts to the ballooning welfare bill, the Budget certainly increases spending in one area: welfare. With frozen tax thresholds pushing workers into higher tax bands, limited support for growth, and ongoing confusion around the “black hole” narrative, this Budget leaves many of the UK’s underlying challenges untouched.
This then brings the question: if the Budget isn’t for economic growth, the Government’s core mission, then what is it for? Well, nothing is certain in politics, but if Labour MPs are happy with the Budget, then the Chancellor may have bought herself the time she needs.
And what does all this mean for the development and real estate industry? The Government has clearly been sending all the right signals and making all the right noises when it comes to development. The Housing Secretary Steve Reed is on a warpath to deliver the ambitious 1.5 million homes and has even picked up his own Trump-style apparel with his red ‘Build Baby Build’ hats. The industry is doing its best to rise to the challenge, but it too is affected by the broader decline in the Government’s political authority. If the real estate sector is to be unleashed in 2026, then the industry is going to need more from the Government to unlock growth, investment and opportunities.
Image credit: ID 353685989 | Budget Briefcase © Fred Duval | Dreamstime.com
