When Rishi Sunak stands up to deliver his budget and three-year spending review on Wednesday it will be his first real opportunity to set the tenor of his chancellorship unencumbered from the immediate crisis of COVID – although the fall-out of this pandemic will undoubtedly loom large.
It will make a change for a chancellor who has spent his first 20 months in office embroiled in the biggest public health crisis seen in a century, which in turn triggered an economic crisis that has left the public debt – borrowing accumulated over time – at about 95% of GDP, the highest level in more than 50 years.
Having guided the country through the past 18 months, spending hundreds of billions to prop up public services, people’s pay packets, and businesses, the chancellor is now focused on the post-pandemic rebuild.
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What can we expect from the budget?
On Wednesday, Mr Sunak will set out on that journey in his first-ever joint budget and Spending Review, in which he will set the ‘spending envelope’ – how much total government spending will be over the next three years – as he divides up funds between different departments.
‘Highly unlikely’ to see further tax rises
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A big set piece event, government ministers and economists are not expecting a big tax and spend budget, those decisions have already been taken: Prime Minister Boris Johnson has only just announced a manifesto-busting £12bn hike in national insurance to fund the NHS and social care, while Mr Sunak lifted corporation tax and the freezing of personal allowances in the March budget.
“This is the third big fiscal event of the year. We’ve already had a budget and huge tax rises, so it’s highly unlikely we’ll see the raising of any taxes,” said Paul Johnson of the Institute of Fiscal Studies.
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“We don’t expect to see a cut in spending, but a lot of departments will still have less to spend, not least because spending on the NHS keeps taking a big slice of pie.”
Government insiders say all departments will see an increase in their day-to-day budgets in real terms, but eyes will be on how unprotected areas of government – the Ministry of Justice, the Home Office, local government – fare in terms of their spending settlements, given that more than 40% of spending overall is now funnelled into the NHS and social care.
But if this is not to be a headline-grabbing budget, allies hope it will be the moment in which this war-footing chancellor finally gets to show his peacetime approach to the job is reforming and fiscally responsible.
Mr Sunak cites Nigel Lawson – the Thatcher-era chancellor who reduced the top rate of income tax from 83% to 40% – as the predecessor from whom he draws inspiration.
“He doesn’t want to be driven just by events,” says one ally.
“He wants to be a reformer and come out of this crisis with fresh eyes about how the Treasury might do things better.”
Business rate reform on the back-burner
To that end, the chancellor is expected to announce a simplification of alcohol duties in this budget, halving the 15 different bands of duties to simplify taxes.
It will be billed as totemic of Mr Sunak’s desire to reform and simplify the tax system as well as a post-Brexit opportunity – the UK can do this because it’s no longer bound by EU directives on alcohol taxation.
Image: The reform of business rates has been put on the back burner
What he won’t do this time around however is reform business rates, delaying again the fundamental overhaul of the system promised in the Conservative Party’s 2019 manifesto and followed up by a review in Spring 2020.
Allies say Mr Sunak does want to reform the system, and level up between bricks and mortar businesses and virtual ones – he is considering whether to introduce an online sales tax – but has decided to push business rates reforms into next year.
One ally said the reality is that the chancellor hasn’t had the time to do the work on what is a policy-dense and politically fiddly policy area. It will no doubt disappoint businesses, and the chancellor’s ability to overhaul the system before the next election will become a test of how much of a reforming chancellor he really is.
Mr Sunak will also use the budget to build on his conference speech as he stresses again the need for fiscal responsibility – his slogan for the speech will be along the lines of ‘responsible choices for a stronger economy’.
Reining in government borrowing
The chancellor has set current spending plans around an ambition to stop borrowing to fund day-to-day spending within three years, and the expectation is that he could use the budget to set out formal rules to rein in government borrowing in order to demonstrate fiscal discipline ahead of the next election.
But this budget is more than just an opportunity for Mr Sunak to signal he is both a reformer and fiscally disciplined, he will also use this moment to reiterate the prime minister’s amorphous levelling-up agenda.
England’s city regions will receive £7bn for transport improvements as the chancellor looks to improve services for those living in Greater Manchester, the West Midlands and South Yorkshire.
Decisions on the future of the High Speed 2 rail line from London to northern England and an upgrade of the trans-Pennine line from Leeds to Manchester (dubbed HS3) will be made after the budget, when the Integrated Rail Plan is announced.
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Is there going to be HS2 extension into Leeds?
The chancellor is also expected to announce a standard annual rise for the minimum wage in the budget, pushing it closer to £10, from £8.91 an hour for over-23s (the National Living Wage). In 2019, the former chancellor Sajid Javid promised to lift the minimum wage to £10.50 an hour for over-21s by 2024.
COVID still looms large
If you asked the chancellor what most worried him about the coming months, I suspect COVID would inevitably loom large.
The risk of a new COVID variant could put the country, and the economy, back on its heels – and even if the gloomiest scenario doesn’t come to pass, what is more certain is that this chancellor is living with uncertainty.
Image: The aftermath of the COVID-19 crisis will still loom large
Supply chain shortages, inflation, rising prices, and the possibility of rising interest rates: it is a fiendishly complicated and volatile landscape upon which to build a post-COVID recovery.
While the prime minister told Sky News last month that fears over inflation have proved “unfounded”, it is thought that the chancellor and other cabinet ministers are very worried about inflationary pressure and the knock-on effect it could have on the cost of living, interest rates and public finances, as a 1% interest rate rise increases government debt repayments by £21bn a year – equivalent to the entire defence budget.
“It’s unpredictable at the moment,” says the IFS’s Paul Johnson.
“The fiscal outlook is so dependent on what the OBR forecast the economy will be in three years time, but determining what he’s got to spend because of fiscal rules, comes with huge uncertainty.
“Even ignoring COVID we don’t really understand where the economy is at the moment. And in addition, we don’t know whether COVID will peter out or cause more problems, so he is fighting in fog.”
A chance then this week for the chancellor to set out the principles that will guide him. But the path ahead is still too hard to tread with any confidence.
“Return hubs” that would see Britain send failed asylum seekers to another country have been endorsed by the UN’s refugee agency.
There have been reports that Sir Keir Starmer’s government is looking into deporting illegal migrants to the Balkans.
According to The Times, Home Secretary Yvette Cooper met the UN’s high commissioner for refugees last month to discuss the idea.
It would see the government pay countries in the Balkans to take failed asylum seekers – a prospect ministers hope might discourage people from crossing the Channel in small boats.
A total of 9,099 migrants have made that journey so far this year, including more than 700 on Tuesday this week – the highest number on a single day in 2025.
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2:11
One dead in Channel crossing
The UN’s refugee agency has set out how such hubs could work while meeting its legal standards in a document published earlier this week.
It recommended monitoring the hubs to make sure human rights standards are “reliably met”.
The country hosting the return hub would need to grant temporary legal status for migrants, and the country sending the failed asylum seekers would need to support it to make sure there are “adequate accommodation and reception arrangements”.
A UK government source said it was a helpful intervention that could make the legal pathway to some form of return hub model smoother.
It comes after the EU Commission proposed allowing EU members to set up so-called “return hubs” abroad, with member state Italy having already started sending illegal migrants abroad.
It sends people with no right to remain to Italian-run detention centres in Albania, something Sir Keir has taken an interest in since coming to power.
With Reform UK leading Labour in several opinion polls this year, the prime minister has been talking tough on immigration – but the figures around Channel crossings have made for difficult reading.
Lib Dems don’t tend to listen to right-wing podcasts.
But if they did, they may be heartened by some of what they hear.
Take the interview Kemi Badenoch gave to the TRIGGERnometry show in February.
Ten minutes into the episode, one of the hosts recounts a conversation with a Tory MP who said the party lost the last election to the Lib Dems because they went too far to the right.
Everyone laughs.
Then in March, in a conversation with the Canadian psychologist Jordan Peterson, the Tory leader was asked to describe a Liberal Democrat.
“Somebody who is good at fixing their church roof,” said Ms Badenoch.
She meant it as a negative.
Lib Dems now mention it every time you go near any of them with a TV camera.
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4:12
‘It’s a two-horse race!’
The pitch is clear, the stunts are naff
At times, party figures seem somewhat astonished the Tories don’t view them as more of a threat, given they were beaten by them in swathes of their traditional heartlands last year.
Going forward, the pitch is clear.
Sir Ed Davey wants to replace the Tories as the party of middle England.
Image: Sir Ed rides on a rollercoaster. Pic: PA
One way he’s trying to do that is through somewhat naff and very much twee campaign stunts.
To open this local election race, the Lib Dem leader straddled a hobbyhorse and galloped through a blue fence.
More recently, he’s brandished a sausage, hopped aboard a rollercoaster and planted wildflowers.
Senior Lib Dems say they are “constantly asking” whether this is the correct strategy, especially given the hardship being faced by many in the country.
They maintain it is helping get their message out though, according to the evidence they have.
“I think you can take the issues that matter to voters seriously while not taking yourself too seriously, and I also think it’s a way of engaging people who are turned off by politics,” said Sir Ed.
Image: Sir Ed on a hobby horse during the launch of the party’s local election campaign in the Walled Garden of Badgemore Park in Henley-on-Thames. Pic: PA
Pic: PA
‘What if people don’t want grown-ups?’
In that way, the Lib Dems are fishing in a similar pool of voters to Reform UK, albeit from the other side of the water’s edge.
Indeed, talk to Lib Dem MPs, and they say while some Reform supporters they meet would never vote for a party with the word “liberal” in its name, others are motivated more by generalised anger than any traditional political ideology.
These people, the MPs say, can be persuaded.
But this group also shows a broader risk to the Lib Dem approach.
Put simply, are they simply too nice for the fractured times we live in?
“The Lib Dems want to be the grown-ups in the room,” says Joe Twyman, director of Delta Poll.
“We like to think that the grown-ups in the room will be rewarded… but what if people don’t want grown-ups in the room, what if people want kids shitting on the floor.”
Image: Sir Ed canoeing in the River Severn in Shrewsbury, Shropshire. Pic: PA
A plan that looks different to the status quo
The party’s answer to this is that they are alive to the trap Lib Dems have walked into in the past of adopting a technocratic tone and blandly telling the public every issue is a “bit more complicated” than it seems.
One senior figure says the Lib Dems are trying to do something quite unusual for a progressive centre-left party in making a broader emotional argument about why the public should pick them.
This source says that approach runs through the stunts but also through the focus on care and the party leader’s personal connection to the issue.
Presenting a plan that looks different to the status quo is another way to try to stand apart.
It’s why there has been a focus on attacking Donald Trump and talking up the EU recently, two areas left unoccupied by the main parties.
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1:09
‘A snivelling cretin’: Your response?
The focus on local campaigning
But beyond the national strategy, Lib Dems believe it’s their local campaigning that really reaps rewards.
In the run-up to the last election, several more regional press officers were recruited.
Many stories pumped out by the media office now have a focus on data that can be broken down to a constituency level and given to local news outlets.
Party sources say there has also been a concerted attempt to get away from the cliche of the Lib Dems constantly calling for parliament to be recalled.
“They beat us to it,” said one staffer of the recent recall to debate British Steel.
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1:08
Steel might have been ‘under orders’ from China
‘Gail’s bakery rule’
This focus on the local is helped by the fact many Lib Dem constituencies now look somewhat similar.
That was evidenced by the apparent “Gail’s bakery rule” last year, in which any constituency with a branch of the upmarket pastry purveyor had activists heaped on it.
The similarities have helped the Lib Dems get away from another cliche – that of the somewhat opportunist targeting of different areas with very different messages.
“There is a certain consistency in where we won that helps explain that higher vote retention,” said Lib Dem president Lord Pack.
“Look at leaflets in different constituencies [last year] and they were much more consistent than previous elections… the messages are fundamentally the same in a way that was not always the case in the past.”
Image: Sir Ed in a swan pedalo on Bude Canal in Cornwall. Pic: PA
A bottom-up campaign machine
New MPs have also been tasked with demonstrating delivery and focusing doggedly on the issues that matter to their constituents.
One Home Counties MP says he wants to be able to send out leaflets by 2027, saying “everyone in this constituency knows someone who has been helped by their local Lib Dem”.
In the run-up to last year’s vote, strategists gave the example of the Lib Dem candidate who was invited to a local ribbon-cutting ceremony in place of the sitting Tory MP as proof of how the party can ingratiate itself into communities.
With that in mind, the aim for these local elections is to pick up councillors in the places the party now has new MPs, allowing them to dig in further and keep building a bottom-up campaign machine.
‘Anyone but Labour or Conservative’
But what of the next general election?
Senior Lib Dems are confident of holding their current 72 seats.
They also point to the fact 20 of their 27 second-place finishes currently have a Conservative MP.
Those will be the main focus, along with the 43 seats in which they finished third.
There’s also an acronym brewing to describe the approach – ABLOC or “Anyone but Labour or Conservative”.
Image: Keir Starmer and Kemi Badenoch aren’t exactly flying high in the opinion polls
9% swing could make Sir Ed leader of the opposition
The hope is for the political forces to align and Reform UK to continue splitting the Tory vote while unpopularity with the Labour government and Conservative opposition triggers some to jump ship.
A recent pamphlet by Lord Pack showed if the Tories did not make progress against the other parties, just 25 gains from them by the Lib Dems – the equivalent of a 9% swing – would be enough to make Sir Ed leader of the opposition.
What’s more, a majority of these seats would be in the South East and South West, where the party has already picked up big wins.
As for the overall aim of all this, Lord Pack is candid the Lib Dems shouldn’t view a hung parliament as the best way to achieve the big prize of electoral reform because they almost always end badly for the smaller party.
Instead, the Lib Dem president suggests the potential fragmentation of politics could bring electoral reform closer in a more natural way.
“What percentage share of the vote is the most popular party going to get at the next general election, it’s quite plausible that that will be under 30%. Our political system can’t cope with that sort of world,” he said.
Whether Ms Badenoch will still be laughing then remains to be seen.
This is part of a series of local election previews with the five major parties. All five have been invited to take part.
It would be “foolish” to stop engaging with China, the chancellor has said, as Sir Keir Starmer held his first call with Donald Trump since he put 10% tariffs on goods imported from the UK.
Rachel Reeves will hold talks with the US next week amid efforts to establish a trade deal, which the government hopes will take the sting out of the president’s tariffs.
There has been speculation Washington may press the government to limit its dealings with China as part of that deal, having launched a tit-for-tat trade war with its economic rival.
But Ms Reeves told The Daily Telegraph:”China is the second-biggest economy in the world, and it would be, I think, very foolish, to not engage.
“That’s the approach of this government.”
She suggested she would back the fast fashion firm Shein launching an initial public offering (IPO) in the UK, saying the London Stock Exchange and Financial Conduct Authority have “very strict standards” and “we do want to welcome new listings”.
Shein, which was founded in China but is now based in Singapore, has faced several obstacles to its efforts to float, including UK political pressure over alleged supply chain and labour abuses.
Image: Sir Keir Starmer and Donald Trump met in February. Pic: PA
‘Productive discussions’
When it comes to a UK-US deal, The Daily Telegraph has reported officials in Washington believe an agreement could be weeks away.
But on Thursday, Mr Trump said he was in “no rush” to reach any deals because of the revenues his new tariffs are generating.
During Sir Keir’s call with the US president on Friday, the two leaders talked about the “ongoing and productive discussions” on trade between the two nations, according to a Downing Street spokesperson.
“The prime minister reiterated his commitment to free and open trade and the importance of protecting the national interest,” Number 10 said.
As well as the 10% levy on all goods imported to America from the UK, Mr Trump enacted a 25% levy on car imports.