Rachel Reeves to deliver ‘fixing the foundations and change’ budget – but it’ll be a difficult sell
The Labour manifesto never did add up.
On the one hand, Keir Starmer vowed there would be “no return to austerity” under his government, while also insisting he had “no plans” to raise taxes beyond an £8bn raid on private equity, oil and gas companies, private school fees and non-doms to pay for more teachers and NHS appointments.
Follow live: All the latest on budget day
In reality, whoever won the election faced tens of billions of pounds in tough choices over tax and spending. But instead of levelling with us, the two main parties embarked in a “conspiracy of silence” in order to win votes.
Today, the truth will out, in a budget which will define Sir Keir Starmer’s first term in a way his manifesto did not.
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What to expect from the budget
There will be huge tax rises and there will be changes in the fiscal rules to allow the chancellor to borrow more to invest in Britain’s crumbling infrastructure.
And we will finally find out which “working people” are the ones Sir Keir Starmer wants to protect as small and big businesses, property owners, shareholders – and perhaps “Middle England” too – braces itself for tax rises, and the government braces itself for the fall-out.
The prime minister set the hare running on who’s in the firing line for tax rises last week at the Commonwealth Heads of Government summit in Samoa when he told me “working people” were those who “go out and earn their living, usually paid in a sort of monthly cheque” but they did not have the ability to “write a cheque to get out of difficulties”.
He told me explicitly that “working people” who also owned assets, such as property or shares, did not fit his definition.
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Sky News questions Starmer on tax rises
So business owners, property owners and Middle England do have some cause for alarm.
The pledge to “not increase national insurance, the basic, higher, or additional rates of income tax, or VAT” has been tweaked in recent weeks to a promise to “protect the payslips of working people”.
Employers are expecting an increase in national insurance contributions they must pay on wages – many will argue this is a flagrant breach of a manifesto pledge.
In another blow to employers, but a win for those struggling on low wages, Labour have also announced a 6.7% increase in the National Living Wage for over three million workers next year, amounting to a pay boost worth £1,400-a-year for an eligible full-time worker.
Is this the moment the manifesto is revealed as a sham? Labour insiders insist not and point, again, to the “£22bn black hole” in the current financial year they discovered when their took office – and which ratchets up to a £40bn gap in the public finances over the course of the parliament – that they now have to plug.
Politically, they hope to blame the big tax rises and borrowing on the economic inheritance left to them by the Tories and buy some space with voters.
As one senior government figure put it to me: “The scale of the economic inheritance is bigger than thought and it has blown a political and economic hole in our first few months.”
This will be a message Rachel Reeves will want to land at the despatch box on Wednesday.
But a public disillusioned with politicians might not see it like that as they watch a Labour chancellor, flanked by a prime minister who promised the opposite in the election, embark on a massive round of tax rises that but months ago they were told were not coming down the tracks.
Ms Reeves is set to deliver the budget from 12.30pm. Pic: Treasury
Insiders acknowledge this is going to be a tax and spend budget that goes far beyond what we were told to expect when Labour were asking for votes.
But they hope what they can do with this big moment is to take it beyond the winners and losers and frame this first Labour budget in over 14 years as “forging a new settlement” for the people and the country.
To that end, this will be the “fixing the foundations and change” budget: “This is a new economic settlement from a government willing to investment and, in particular, borrow to invest, and that is a change and it will show a path towards long term growth.”
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Because, as we drill into who is a working person, and who is going to be hit with tax raises in this budget, there will also be a big story about billions of investment in our country’s energy and transport infrastructure, into housing and hospitals and schools.
“If we get it right, on the evening of the budget, we want to be able to show that we protected your pay slip, are fixing the NHS and investing to rebuild Britain,” one senior figure explains. “What’s the alternative? Choice is going to feature very heavily in the chancellor’s speech. We have made our choices and we are asking business and the wealthiest to pay a bit more to grow our economy and protecting working people.”
And this new settlement, when it lands, will be massive. Rachel Reeves intends to change her borrowing rules to allow up to £53bn more in borrowing to be spent on public services and infrastructure.
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Trailing the decision at the International Monetary Fund summit in Washington last week, the chancellor said she was making the change in order to take opportunities for the economy “in industries from life sciences to carbon capture, storage and clean energy to AI and technology”, as well as using borrowing to “repair our crumbling schools and hospitals”.
The danger for the chancellor is that what actually comes out the other side is anger over tax rises not flagged in the manifesto, or accusations that the government is being Janus-faced if it claims it’s protecting working people should it also, as speculated, extend the freeze on income tax thresholds beyond the 2028 deadline set by the last government, which would drag millions of workers into higher tax bands (and raise as much as £7bn a year for the government).
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Will there be ‘budget nasties?’
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How might the middle classes and wealthier voters respond to their incomes being squeezed? And how might businesses respond to being asked to pay billions more in taxes from a government that has been banging on about being pro-business for months?
It is going to be a difficult sell, no doubt. But this government is calculating that short-term pain now will translate into gains in the medium to long term if Reeves can pull it off and kick-start economic growth.
The hope is that come the next Labour manifesto, the pledges on the NHS, economy, better housing and jobs have been met and the public can forgive the tax rises foisted on them to get there.
Starmer talked endlessly about it being a change election and it will be this budget, not his manifesto, that proves the point.
The UK lacks a national plan to defend itself from attack and is moving at a “glacial” pace to fix the problem despite threats from Russia and China, a report by MPs has warned.
With the whole country needing to understand what it means to be ready for war, the Defence Select Committee also said it had seen no sign of a promised “national conversation on defence and security” that was launched by Sir Keir Starmer in June.
Sky News and other journalists were even blocked on Monday from interviewing sailors aboard HMS Prince of Wales, the Royal Navy’s flagship aircraft carrier, in direct contrast to the prime minister’s stated aim of greater engagement.
Royal Navy aircraft carrier HMS Prince of Wales. File pic: AP
Public needs to know ‘what to expect’ from war
“We have repeatedly heard concerns about the UK’s ability to defend itself from attack,” said Labour MP Tan Dhesi, chair of the committee.
“Government must be willing to grasp the nettle and prioritise homeland defence and resilience.
“In achieving this, government cannot shy away from direct engagement with the public.
“Wars aren’t won just by generals, but by the whole of the population getting behind the Armed Forces and playing our part.
“There needs to be a co-ordinated effort to communicate with the public on the level of threat we face and what to expect in the event of conflict.”
The Royal Navy tracked a Russian submarine in UK waters last month. Pic: Royal Navy/MOD
‘The Wargame’ made real?
The findings of the report support a podcast series by Sky News and Tortoise Media called The Wargame – released in June.
It simulated a Russian attack on the UK and played out what the impact might be for the country in the absence of a credible, resourced and rehearsed national defence plan – something Britain maintained rigorously during the Cold War.
Sky News first revealed in April 2024 that the previous government no longer had such a plan, though work was under way to develop one.
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The Defence Select Committee report – based on a nearly year-long inquiry – found: “The UK lacks a plan for defending the homeland and overseas territories with little progress on the Home Defence Programme.”
It said this meant the government was failing to meet a fundamental commitment to the NATO alliance – the Article 3 requirement to maintain the “capacity to resist armed attack”.
The report quoted Luke Pollard, a defence minister, acknowledging that “we have been very clear that we are not satisfied with Article 3 in the UK”.
Britain’s new Ajax fighting vehicle, which arrived overdue and at great financial cost. Pic: PA
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Yet the MPs’ report added: “Despite this recognition from government… measures to remediate seem to be moving at a glacial pace.”
It said: “Cross-government working on homeland defence and resilience is nowhere near where it needs to be. The government has said repeatedly that we are in an era of new threat, yet decision-making is slow and opaque.”
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The rebuke from the MPs was published as John Healey, the defence secretary, prepares to announce that 13 sites across the UK have been identified as possible locations for at least six new weapons factories.
“This is a new era of threat,” he will say at a speech in Westminster later.
“We are making defence an engine for growth, unambiguously backing British jobs and British skills as we make the UK better ready to fight and better able to deter future conflicts.
“This is the path that delivers national and economic security.”
Industry will be invited to submit proposals to produce ammunition and explosives, with the Ministry of Defence saying it hopes work on the first factory will begin next year.
Scotland secured a place at the men’s World Cup for the first time since 1998 as stoppage-time goals by Kieran Tierney and Kenny McLean secured a thrilling 4-2 win over Denmark at Hampden Park.
Scott McTominay’s spectacular third-minute bicycle kick had given the hosts a half-time lead.
Rasmus Hojlund equalised for the Danes in the 57th minute shortly before Rasmus Kristensen was sent off, but Lawrence Shankland restored Scotland’s advantage.
When Patrick Dorgu brought Denmark level again with nine minutes remaining, it seemed they would claim the point needed to top the group and book their place at next year’s tournament in the US, Canada, and Mexico.
However, Tierney fired an unstoppable shot past Kasper Schmeichel in the third minute of stoppage time
And then, with the Denmark goalkeeper up in attack at the other end of the pitch, McLean hit a long-range effort from his own half to spark delirious scenes.
Scotland’s Kenny McLean celebrates scoring his side’s fourth goal against Denmark. Pic: PA
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The victory saw Scotland top Group C and secure automatic qualification for the 2026 World Cup.
Head coach Steve Clarke had already led his country to back-to-back European Championships.
He told the BBC: “Scott McTominay scored the best overhead kick I’ve ever seen, and it might not have been the best goal of the night!”
Scott McTominay celebrates scoring the opening goal for Scotland. Pic: Reuters
Scotland captain Andy Robertson dedicated the victory to his former Liverpool teammate Diogo Jota, who died earlier this year in a car accident.
He told the BBC: “We certainly put the country through it, but I’m sure it will be worth it.”
“I couldn’t get my mate Diogo Jota out of my head today,” he added. We spoke so much together about the World Cup. When he missed out in Qatar through injury and I missed out when Scotland never went.
“We always discussed what it would be like going to this World Cup. I know he’ll be somewhere smiling over me tonight.”
The draw for the 2026 World Cup will take place in Washington on 5 December.
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