Budget 2025: Has Reeves saved her job?

0:02Rachel Reeves:This is a Global Player original podcast. This was Rachel Reeves this time last year. I'm really clear. I'm not coming back with more borrowing or more taxes. And that is why at this budget, we did wipe the slate clean to put public finances and public services on a firm footing. And as a result, we won't have to do a budget like this ever again. And this was Rachel Reeves today. Madam Deputy Speaker, to break the cycle of austerity, we need a fair and a sustainable tax system. One that generates revenues to fund the public services that we all use and supports investment to grow our economy. That does mean that today I am asking everyone to make a contribution.

0:49Yeah. In Labour's manifesto only a year and a half ago, they promised tax rises of£8.5 billion. So far, they have raised£66 billion, including today's budget. Can we now think they're finally done? Or might they be coming back for more? Welcome to the News Agents.

1:14The News Agents. It's John. It's Lewis. And we are in Westminster, where the circus is in full swing on Budget Day. There are tractors driving around Westminster, the farmers lobby. There are pro-Europeans waving the European flag, wanting us to be back in the European Union. And so it goes on every corner on every street. There's a different kind of lobby group anxious for their own particular thing to be implemented in the budget. But I cannot remember a budget which has seen such a chaotic lead up to it with the leaks, with the kites being flown, with all the other things that have happened, particularly on whether they were going to break the manifesto pledge of raising income tax.

1:54And they backed away from that. They didn't raise the basic rate of income tax. And then to cap it all, the Office for Budget Responsibility, this body that kind of grades the government's work and the government makes its assessments on the basis of, which should kind of release its full tables of what the numbers are for growth and all the rest of it. once the Chancellor has sat down at the end of her budget, released it about 40 minutes before she stood up to speak. And it just kind of, oh, my God, the inability to run a whelk stall, as Ken Clarke said to you last week, was on evidence today.

2:32Rachel Reeves:Where are these whelk stalls? It used to be a thing Janine said. Whelks and jelly deals. Yeah, look, the lead up to it was shambolic. The day was vaguely shambolic. But of course, you know, that's all sort of process. Yes, what obviously matters is what was in it and what was in the budget. And this was, perhaps against expectations at some point this year, a very significant budget for lots and lots of reasons. So just to run through some of the things that Reeves announced. Big headlines. Income tax thresholds will be frozen until April 2031. That's a year longer than expected, extending the Tory freeze.

3:05Rachel Reeves:We'll talk a bit more about what that means in practice in a sec. There'll be new taxes, a so-called mansion tax on homes worth more than£2 million and£5 million, basically adding extra council tax ban. There'll be a mileage charge for electric vehicles. There'll be a tax on pension contributions above£2 ,000. There'll be changes to ISA rules for savings. The two-child benefit cap, which has been occupied, has become a bit of a shibboleth for Labour MPs. They've been desperate to reverse this George Osborne era policy, which limits benefits for families with more than two children. That will be lifted at the cost of some three billion pounds.

3:45Rachel Reeves:Lots of other things as well. The overall big picture is that the government's tax take will reach an all time high of 38 percent of GDP in 2030, 31. While growth, which, of course, you will remember, is the thing that the government said it wanted to focus on as a means of getting out of this kind of like economic doom loop that we find ourselves in to try and grow the size of the economy. Well, the OBR have downgraded growth forecasts for every year apart from this year in the time horizon. So it's a big budget. Lots and lots of tax rises. One of the most significant tax raising budgets that we have seen, which, of course, comes on top of one of the most significant tax raising budgets that we've seen, which was Rachel Reeves' last budget.

4:33Yes. And if you compare what the Labour government have done to what they promised in the manifesto, the gap is significant. I think in the manifesto they talked about needing£8 billion worth of tax increases. And I think currently on these two budgets, we've had£66 billion of tax increases.

4:53Rachel Reeves:Well, just on that, John, if there were an election tomorrow, the Institute for Fiscal Studies say that there would have been more net tax increases announced in this parliament, which is not even two years old than any other parliament since at least 1970. So this so far has been a very significant tax raising parliament. The tax burden is a bit of a pejorative term. Some people don't like it, but the sort of tax burden, for want of a better expression, is rising and is rising rapidly, particularly for middle income workers. And I suppose in the political framing of this budget, we know what the government's ambition is in the country.

5:31And they've said economic growth is the number one mission. And so you've got the audience that is the general public, us voters. And what do we think this is going to do to us? The second kind of audience are the markets and what happens to gilts and government, the cost of government borrowing. And the third market, and one not to be underestimated, is the Labour backbenches, where you have got a government that is deeply unpopular, where the backbenchers think that Keir Starmer and Rachel Reeves aren't particularly up to the job. And there's all this talk of whether there's going to be a leadership challenge and a mutiny.

6:13And it's against that backdrop that you have to look at Rachel Reeve's budget. Which of those three audiences will feel most happy at the end of today, if any, at all? I would gently say probably Labour backbenchers.

6:27Rachel Reeves:Indeed, I was messaging a Labour backbencher earlier on, who I think is a pretty good barometer of the kind of mood of the parliamentary Labour Party, which, as we know, has been sulfurous leading up to this budget. and there has been so much speculation and actual plotting that has been going on about a potential leadership challenge either maybe some people were even saying this side of christmas but certainly perhaps around the elections next year nonetheless i think you could see from labour mps that they will have been pretty happy by much of what was in that budget i text them saying thoughts on this and they text me saying she that is the chancellor lifted half a million children out of poverty, referring to the lifting of the two-child benefit cap.

7:04Rachel Reeves:That means a lot to Labour MPs. It is sort of almost talismanic for them at this point. And indeed, we should say the two-child benefit cap has been a deeply damaging policy for hundreds of thousands of children across the country, has made their plight, their living in poverty worse. And there is a powerful moral argument to lift it in the sense that it hasn't done what it's been intended to do, which was to limit the size of bigger families who are on benefits. But also, as the Chancellor herself said, there is a why should it be that children who are growing up in poverty should pay a penalty already starting out at such a disadvantage in life by comparison to their relative peers, perhaps for mistakes that their parents may or may or may not have made.

7:48Rachel Reeves:But that is not how the country sees the welfare the two child benefit limit well let's just play that clip of rachel reeves in the budget because i think until that moment the comments had been kind of a lot of harrumphing and hurraring and whatever else but it was kind of just noise until she made that particular announcement and so because i am tackling fraud and error in our welfare system because i am cracking down on tax avoidance because i am reforming gambling taxation I can announce today, fully costed and fully funded, the removal of the two-child limit in full from April. And you could see kind of loads of hands up, waving order papers in support on the Labour backbenchers.

8:36And the important thing about this is, Lewis, the moral arguing you make is sort of, you know, absolutely profound and unarguable. but in the country actually there was no great demand for this particular policy i think that the two child cap was kind of had enjoyed considerable support so you know the old harold wilson quote labor is a moral crusade or it is nothing you could see that there was a bit of the moral crusade there and the other thing that struck me is you know there was all these talk of all these blairites going into downing street to take up key positions and whether this would be a Blairite kind of new Labour budget.

9:12No way. This is as old Labour as they come. And I thought Kimmy Baden-Ock sort of hit the mark when she said, you know, this is a budget for benefits street. Today, she has announced a new tax rate of£26 billion. They're all cheering. Household income is down. Spending policies in this budget increase borrowing in every year. That smorgasbord of misery we've just heard from her can be summed up in one sentence. Labour are hiking taxes to pay for welfare. This is a budget for benefits, Street Madam Deputy Speaker, paid for by working people. This budget increases benefits for 560 ,000 families by an average of£5 ,000.

9:55They are hiking taxes on workers, pensioners and savers to pay for handouts to keep their backbenchers quiet.

10:03Rachel Reeves:I think that is the political danger for this budget, which is, look, I think the net result of this budget is that, at least for the short term, I think it will consolidate and shore up Rachel Reeves and Keir Starman within the Parliamentary Labour Party, because the two-child benefit cap has come to occupy such a central place in the political interests of so many Labour MPs. I think it nonetheless may weaken their external political position in the country. And of course, the latter will eventually feed into the former, because if the polling situation continues to decline, then of course, Labour MPs will get nervous.

10:36Rachel Reeves:Ultimately, there is a real danger, I think, that the Labour Party is very easily framed as a result of this budget as the Welfare Party, which is always a danger for Labour governments. And I say that for two reasons. Whatever, as I say, the moral arguments of the two-child benefit cap, which I am personally sympathetic to. It is problematic to lift it at a moment where two other things are happening. Number one, the welfare bill overall continues in a completely unsustainable way to explode and to rise and rise and rise. Indeed, the OBR says in this document that their estimates for total welfare spending will be some 16 billion higher than they thought it would be at the end of the forecasts arise in a few years time than they thought it would be in March nine months ago.

11:28Rachel Reeves:That is the extent to which spending particularly on health related and disability related welfare spending is continuing to rise and to rise and to rise. This government tried to do something about that. They did a very cack handed bad way, but they tried to do something about it. And they retreated because the Labour MPs wouldn't tolerate it. So difficult to do it in that circumstance And difficult as well to do it at a moment when you are making a substantial set of tax rises on people on modest incomes because they are freezing income tax thresholds. So people who are perhaps weren't paying tax before or weren't paying the higher rate of tax before will find themselves in higher tax brackets.

12:12Rachel Reeves:And they are basically being asked to pay more tax, partly to pay for a welfare benefits bill, which is spiraling out of control. that is such a fodder for Labour opponents. So easy for the Tories and even for the Reform Party as well. And I would be pretty nervous about that if I were a Labour MP. And the other thing that will get a lot of the headlines tonight and tomorrow is this so-called mansion tax, which Labour are very proud to say, look, you know, and again, it's all about redistribution and, you know, hitting the rich and benefiting the poor and say, how is it fair that someone in a, you know, whatever, a housing estate somewhere or other is paying the same as someone who lives in a£10 million house in Mayfair.

12:53And so they're going to introduce the mansion tax, but it's going to raise a sort of relatively paltry£400 million, theoretically. That's before you've tried to implement it and you've had the upgrading of properties and the council tax bans, which will present all sorts of difficulties along the way. And what will get hardly any coverage tonight even though it's a ton more significant is the salary sacrifice changes to people's pensions which is going to raise four billion pounds so 10 times the amount of money but because it's kind of slightly obscure and you have to understand the details of it people are not going to pay much attention to it but that is going to hit people really hard in terms of you know people who are trying to save for their pensions and their retirements and I just wonder whether the mansion tax thing, it sounds good but is it actually going to raise a lot of money?

13:48Is it worth the effort that it's going to cost to implement?

13:51Rachel Reeves:I suspect that when it finally comes for it to be rolled out that it will potentially be in a situation after it's sort of been consulted and the reforms where it either doesn't get rolled out in the first place or the amount of money that it raises is pretty nugatory and we already see that it's only forecast to raise£400 million which sounds like a lot of money but in Treasury terms isn't very much money at all That only has to go down a little bit before it raises. I mean, it almost becomes not worth raising. And again, I suppose this is my sort of wider frustration in a way. You know, I think I mean, we've spoken on the show before.

14:20Rachel Reeves:I think that there is a very strong case to move to greater wealth taxation, to reduce income taxation. I think there is a strong case for reform of property taxation in this country. But again, this feels like it's just sort of the classic patch of men way that the Treasury and the governments come along and do. and it sounds sort of good on the surface, but actually in the end doesn't take you very far and isn't very comprehensive and isn't very well thought out. I was asked at the same time, as I say, and I do think it's just worth dwelling on this, at the same time, we are moving to a situation where the state, the government, is going to be taking more and more money, not from rich people, I mean, it will be doing that, but actually the focus actually on this budget, really, in terms of income taxation, at least, it's not really touching the sort of poorest that much.

15:05Rachel Reeves:In terms of income taxation, It's not targeting the richest very much, although there are some other things that sort of target the rich. This is if you're in the sort of middle third in that sort of middle middle group, then this is pretty damaging for you over the long term. And what I'd say is, is that the fiscal creep that we've seen, the changes to income tax thresholds. And just to explain what that means, basically, if you don't increase with inflation, the threshold at which you start to pay income tax. but your wages do go up with inflation, then you find yourself paying higher rates of tax than you otherwise would have done.

15:41Rachel Reeves:And what Rachel Reeves announced today is an extension by several years of those thresholds which started under the Conservatives. And this is basically going to go on for 10 years now, more or less. Those thresholds are not going to go up. And that basically is maybe the biggest tax increase from a single policy that we've seen in history. It's going to transform our tax base. If you think about, just to sort of illustrate it, you only have to go back to about 2015 or so to find that the higher rate of tax was only being paid by about 8 % to 9 % of people. That is forecast to go up to nearly 20 % of people.

16:22Rachel Reeves:When it was first introduced, the higher rate of tax, the 40p in the pound by Nigel Lawson in the late 80s, when it was reduced to 40p, only about 3 % of people in the country were paying it, i.e. the higher rate of tax used to be a rate of tax for really quite rich people. It will now be being paid by people on pretty relatively modest incomes. And that is a transformation in our tax system, which is here to stay. As I say, it started under the Tories, but Rachel Reeves has embedded it, expanded it and consolidated it today. I do think that this budget, you've talked about the dangers for Labour as being seen as the sort of welfare state party.

17:02I do think this creates an opportunity for the Conservative Party in terms of, you know, big government versus small government. I think that, you know, Paul Johnson, former head of the IFS, said, you know, look, this is a historic change to the size of the state, what is being announced today. And you can see that on the Conservative Party's right, you've got reform. but reform quite like welfare. They've turned into a bit of a welfare loving party where they want to have all these benefits and all these state handouts for everyone. And so you've got reform liking big welfare spending. You've got Labour liking a lot of welfare spending.

17:39You could see the reinvention of the Tories as a Thatcherite party and say, we have got to stop the ballooning size of the state, the amount of money that we are taking from taxpayers to fund these big projects and we've got a fundamental reform. And I think that Kemi Baden-Ock has got a space now where people were saying, well, what's she for? And what is the Tory argument? I think their argument gets stronger as a result of today.

18:06Rachel Reeves:Look, it is true that, in fairness to the Chancellor, that the OBR came back and said that as a result of things that happened before their time, because of Brexit being a sort of economic disaster, because of Covid, because of the war in Ukraine. This has had a bigger, more scarring impact on our economy. And that has fed through into tax receipts. It's fed through into productivity and so on. And the Tories should be held account for all of those things. And it's very easy for them now. They're sort of going around and saying this is all refault. It's clearly, clearly not true. But as a result of that, and as a result of that scarring, it is actually even more incumbent on this government to chart and to plot a real growth plan.

18:51Rachel Reeves:The problem with this budget, and it's fine as far as it goes, and it does do sort of Labour things, it's redistributive, you know, it's focusing on the low paid, and I can see why lots of Labour MPs will like it. But that only takes you so far, because if you're only just reapportioning the bits of the pie in different directions, and not growing the pie, then all it means is that just perpetuates the doom loop that we've been in, and it makes politics harsher, it makes the economy harsher, and in the end, everyone gets poorer from the top income decile to the bottom income decile, right? So what you need, partly as a result of the Tories kind of economic mismanagement, is an aggressive, imaginative growth plan that guarantees prosperity.

19:33Rachel Reeves:Prosperity isn't an optional extra for social democracy. It is a prerequisite for social democracy. And not just a growth plan, but a sense of how the state needs to be re-engineered and to be refashioned. And having a theory of the state, not just to just allow it to sort of continue to expand and not get the productivity gains from it that you need in order to justify that expansion. I mean, you know, it just made me makes me laugh just thinking about the kind of changing kind of rhetoric we've seen on this. It wasn't so long ago that Keir Starmore was telling this show in an interview that he wanted the state to be smaller.

20:08Rachel Reeves:Just listen to this. Do you think simply that the state should be smaller by the end of this parliament? Fewer people should be working for it? Yes, I think it should be smaller, more agile. It should be active. And this is the political difference. By and large, conservatives don't believe in the state. They think the free market should do the work. That's why they think the state should be smaller. I believe in the state. I think it should be active. I think it should be sleeves rolled up. It should be on the pitch making a difference. But at the moment, what we've got is an oversized and underpowered state, the complete opposite of the active state that I believe would make a big difference.

20:46Rachel Reeves:And unfortunately, in terms of this budget, at least, I don't see any extra measures for growth. I just see moving pieces around the board. I just see reapportioning bits of the pie. And that's problematic. It's not just me saying that, by the way. The OBR in their own documents say that there is nothing material in this budget that is prompting them to re-evaluate any of their growth forecasts, i.e. there is nothing new for growth in this budget. And this is something that Rachel Reeves and Keir Starmer said was their top priority. Well, let's speak in a moment to Torsten Bell, the Treasury Minister, who helped frame today's budget for Rachel Reeves.

21:23We'll be back in a moment.

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21:57The News Agents. Well, we're joined in the studio now by Torsten Bell, Treasury Minister, and who played a key role in the preparations for this budget. We'll come on to the detail in a second. But I honestly cannot remember a more shambolic kind of lead up to a budget in terms of kites flown, kites brought down, U-turns on U-turns, taxes were going to go up, you were going to break the manifesto, you're not going to break the manifesto, and then culminating today, and I know it's not your fault in the OBR leaking all the vital details before Rachel Reeves stands up. Would you agree it has been shambolic?

22:32Well, it's lucky for you that you can now get on with discussing the substance of what's in the budget, John, because if you found that, you know, I can understand people have found some of that difficult and the OBR will need to look seriously at what happened with their publication early today. Would you say that's been, it has been confusing, it has been misleading, it has been dispiriting in terms of investment for this country? No, I wouldn't accept that. John, but as I say, the Chancellor's now laid out a budget, so let's get on with discussing what's in it. OK. Key proposal I want to discuss with you.

23:00Welfare spending by 29.30 is going to be£16 billion higher than was forecast in March. Whatever happened to welfare reform? Well, lots is happening, John. We've already set out plans to change universal credit to deal with the problem the Tories left, which they built a welfare system that wrote millions off as too sick to work. And we're already reforming that. And if you look at what the Office of Budget Responsibility say today, they say tens of thousands of people will move into work as a result. We're also setting out plans for a job guarantee so that young people will be offered a job, but they cannot stay on benefits if they choose not to take it.