Rachel Reeves to deliver ‘fixing the foundations and change’ budget – but it’ll be a difficult sell

Published

10 months ago

October 30, 2024

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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.

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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.

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.

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.

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.

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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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.

Business

Cost of long term UK government borrowing hits fresh 27-year high

Published

57 mins ago

September 3, 2025

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Cost of long term UK government borrowing hits fresh 27-year high

After hitting the highest level this century on Tuesday, the cost of long term UK government borrowing has now hit a fresh 27-year high.

The interest rate demanded by investors on the state’s long-dated borrowing (30-year bonds) rose to just below 5.75%, surpassing the 5.72% peak reached on Tuesday, pushing it to a high not seen since May 1998.

It comes as the government auctioned off these long-term loans on Tuesday and was forced to pay a premium to do so.

Issuing bonds is a routine way states raise money.

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As well as meaning the state has to pay more to borrow money, high interest rates on debt can signify reduced investor confidence in the ability of the UK to pay back these loans.

As the trading session continued, the interest rates on long-term government bonds, known as gilt yields, fell back to just above 5.66%, not enough to erase two days of rises.

The benchmark for state borrowing costs, the interest rate on 10-year bonds, also saw rises. The yield rose above 4.8% for the first time since January, before slightly falling back

The spiked borrowing cost also continued to cause a weakening in the pound.

After an initial fall to a month-long low against the dollar, one pound again buys $1.34.

It means sterling goes less far in dollars than before the latest peak in interest rates on government bonds. On Monday, sterling could buy $1.35.

Sterling dropped to equal €1.14 before easing up to €1.15. Just a few months earlier, a pound could buy €1.19 before Donald Trump’s April country-specific tariff announcements.

So why has this happened?

Government borrowing costs have been rising across the world amid a sell-off in bonds – which prompts investors to look for a higher return to hold them.

High inflation and national debts have increased concern about whether states can pay back the money.

Japan’s long-term borrowing cost hit a record high, while the yield on the US’s benchmark 10-year bond hit the 5% mark for the first time since July.

UK bond yields tend to follow the US.

Key to easing UK borrowing costs was the announcement of the date of the budget on Wednesday morning.

UK public finances had been a worry for markets as Chancellor Rachel Reeves struggles to stick to her fiscal rules to bring down the debt and balance the budget.

Disquiet around comparatively low growth in the UK economy also played a role.

Business

Telegraph buyers take step towards £500m deal with Whitehall filing

Published

57 mins ago

September 3, 2025

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Telegraph buyers take step towards £500m deal with Whitehall filing

The American investors who have agreed to become the new owners of The Daily Telegraph have edged closer to gaining control of the newspaper by formally notifying the government of the deal.

Sky News understands that lawyers acting for RedBird Capital Partners, which will own a majority stake in the publisher if the deal is approved, submitted their detailed proposals to the Department for Culture, Media and Sport (DCMS) in the last few days.

The filing means that Lisa Nandy, the culture secretary, must decide whether to issue a new Public Interest Intervention Notice (PIIN) which would trigger further investigations into the takeover.

The notification by RedBird Capital’s lawyers should pave the way for the lifting of an interim enforcement order (IEO) imposed by Lucy Frazer, the then Conservative culture secretary, in December 2023, which prevented the acquirers from exerting any control over the Telegraph.

Insiders believe that the removal of the IEO will result in the DCMS issuing a new PIIN, which would prompt investigations by Ofcom and the Competition and Markets Authority into the £500m takeover.

A previous PIIN was issued in January 2024 when RedBird intended to buy the Telegraph titles in conjunction with Abu Dhabi state-controlled investor IMI.

Following a fraught legislative battle, IMI is now restricted to owning a maximum 15% stake in the newspapers – which it intends to acquire as part of the RedBird-led consortium.

Sky News has already revealed that Sir Leonard Blavatnik, owner of the DAZN sports streaming platform, and Daily Mail proprietor Lord Rothermere are preparing to buy minority stakes as part of the RedBird-led transaction.

RedBird said in May that it was “in discussions with select UK-based minority investors with print media expertise and strong commitment to upholding the editorial values of the Telegraph”.

The Telegraph’s ownership has been in a state of limbo for nearly two-and-a-half years after its parent company was forced into insolvency by Lloyds Banking Group, which ran out of patience with the Barclay family, the newspaper’s long-standing owner.

RedBird IMI, a joint venture between the two firms, paid £600m in 2023 to acquire a call option that was intended to convert into ownership of the Telegraph newspapers and The Spectator magazine.

The Spectator was sold last year for £100m to Sir Paul Marshall, the hedge fund billionaire, who has installed Lord Gove, the former cabinet minister, as its editor.

In July, the House of Lords approved legislation that will allow IMI, which is controlled by Sheikh Mansour bin Zayed Al Nahyan, the vice-president of the United Arab Emirates and ultimate owner of Manchester City Football Club, to hold a minority stake.

Other bidders had tried to gatecrash the Telegraph deal, with the field of rival contenders led by Dovid Efune, the owner of The New York Sun.

His key backer – the hedge fund founder Jeremy Hosking – recently told Sky News their bid was “ready to go” if the RedBird-led transaction fell apart.

Announcing its agreement to acquire the Telegraph titles in May, Gerry Cardinale, founder of RedBird Capital, said it marked the “start of a new era” for two of Britain’s most prominent newspapers.

Mr Cardinale said after the Lords vote: “With legislation now in place, we will move quickly and in the forthcoming days work with DCMS to progress to completion and implement new ownership for The Telegraph.”

Senior Telegraph executives and journalists are said to be frustrated at the pace of the process.

None of the parties involved in the Telegraph ownership situation would comment, while the DCMS declined to comment.

Business

Hundreds of jobs at risk as retailer Bodycare braces for administration

Published

4 hours ago

September 3, 2025

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More than a thousand high street jobs will be put at risk this week when Bodycare, the health and beauty retailer, is forced to call in administrators.

Sky News has learnt that Bodycare, which was founded on a Lancashire market stall more than half a century ago, is expected to appoint administrators from Interpath Advisory as soon as Friday.

Bodycare, which specialises in selling fragrances, toiletries, cosmetics and skincare products, employs about 1,500 people and trades from nearly 150 stores across the country.

The chain’s collapse into insolvency proceedings is likely to trigger a further effort by Interpath to find a buyer for parts of the business.

The company is owned by Baaj Capital, a family office run by Jas Singh.

Baaj, which is considered a likely candidate to buy Bodycare back from the administrators, counts In The Style among its other investments.

The firm also attempted to take over The Original Factory Shop earlier this year before its offer was trumped by Modella Capital, another specialist retail investor.

Bodycare’s deepening crisis comes just weeks after the retailer secured a £7m debt facility to buy it short-term breathing space.

The facility was secured against Bodycare’s retail inventory, according to a statement in July.

Bodycare was established by Graham and Margaret Blackledge in Skelmersdale in 1970, and sells branded products made by the likes of L’Oreal, Nivea and Elizabeth Arden.

The chain was profitable before the pandemic, but like many retailers, lost millions of pounds in the financial years immediately after it hit.

Bodycare received financial support from the taxpayer in the form of a multimillion-pound loan issued under one of the Treasury’s pandemic funding schemes.

The chain is run by retail veteran Tony Brown, who held senior roles at BHS and Beales, the now-defunct department store groups.

Bodycare is the latest high street chain to face collapse this year, amid intensifying complaints from the industry about tax increases announced in last autumn’s Budget.

In recent weeks, River Island and Poundland both narrowly avoided administration after winning creditor approval for restructuring plans involving store closures and job losses.

Baaj has been contacted for comment, while Interpath declined to comment.