Budget 2025: Three things Rachel Reeves’s speech boils down to – and two tricks the chancellor will fall back on
This is going to be a big budget – not to mention a complex budget.
It could, depending on how it lands, determine the fate of this government. And it’s hard to think of many other budgets that have been preceded by quite so much speculation, briefing, and rumour.
All of which is to say, you could be forgiven for feeling rather overwhelmed.
But in practice, what’s happening this week can really be boiled down to three things.
1. Not enough growth
The first is that the economy is not growing as fast as many people had hoped. Or, to put it another way, Britain’s productivity growth is much weaker than it once used to be.
The upshot of that is that there’s less money flowing into the exchequer in the form of tax revenues.
2. Not enough cuts
The second factor is that last year and this, the chancellor promised to make certain cuts to welfare – cuts that would have saved the government billions of pounds of spending a year.
But it has failed to implement those cuts. Put those extra billions together with the shortfall from that weaker productivity, and it’s pretty clear there is a looming hole in the public finances.
3. Not enough levers
The third thing to bear in mind is that Rachel Reeves has pledged to tie her hands in the way she responds to this fiscal hole.
She has fiscal rules that mean she can’t ignore it. She has a manifesto pledge which means she is somewhat limited in the levers she can pull to fill it.
Put it all together, and it adds up to a momentous headache for the chancellor. She needs to raise quite a lot of money and all the “easy” ways of doing it (like raising income tax rates or VAT) seem to be off the table.
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The Budget Explained – in 60 seconds
So… what will she do?
Quite how she responds remains to be seen – as does the precise size of the fiscal hole. But if the rumours in Westminster are to be believed, she will fall back upon two tricks most of her predecessors have tried at various points.
First, she will deploy “fiscal drag” to squeeze extra income tax and national insurance payments out of families for the coming five years.
What this means in practice is that even though the headline rate of income tax might not go up, the amount of income we end up being taxed on will grow ever higher in the coming years.
Second, the chancellor is expected to squeeze government spending in the distant years for which she doesn’t yet need to provide detailed plans.
Together, these measures may raise somewhere in the region of £10bn. But Reeves’s big problem is that in practice she needs to raise two or three times this amount. So, how will she do that?
Most likely is that she implements a grab-bag of other tax measures: more expensive council tax for high value properties; new CGT rules; new gambling taxes and more.
No return to austerity, but an Osborne-like predicament…
If this summons up a particular memory from history, it’s precisely the same problem George Osborne faced back in 2012. He wanted to raise quite a lot of money but due to agreements with his coalition partners, he was limited in how many big taxes he could raise.
The resulting budget was, at the time at least, the single most complex budget in history. Consider: in the years between 1970 and 2010 the average UK budget contained 14 tax measures. Osborne’s 2012 budget contained a whopping 61 of them.
And not long after he delivered it, the budget started to unravel. You probably recall the pasty tax, and maybe the granny tax and the charity tax. Essentially, he was forced into a series of embarrassing U-turns. If there was a lesson, it was that trying to wodge so many money-raising measures into a single fiscal event was an accident waiting to happen.
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Can the budget fix economic woes?
Except that… here’s the interesting thing. In the following years, the complexity of budgets didn’t fall – it rose. Osborne broke his own complexity record the next year with the 2013 budget (73 tax measures), and then again in 2016 (86 measures). By 2020 the budget contained a staggering 103 measures. And Reeves’s own first budget, last autumn, very nearly broke this record with 94 measures.
In short, budgets have become more and more complex, chock-full of even more (often microscopic) tax measures.
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In part, this is a consequence of the fact that, long ago, chancellors seem to have agreed that it would be political suicide to raise the basic rate of income tax or VAT. The consequence is that they have been forced to resort to ever smaller and fiddlier measures to make their numbers add up.
The question is whether this pattern continues this week. Do we end up with yet another astoundingly complex budget? Will that slew of measures backfire as they did for Osborne in 2012? And, more to the point, will they actually benefit the UK economy?
Business
Facewatch: The controversial tech that retailers have deployed to tackle shoplifting and violence
The Christmas period is upon us, and goods are flying off the shelves, but for some reason, the tills are not ringing as loudly as they should be.
Across the country, the five-finger discount is being used with such frequency that retailers are taking action into their own hands.
With concerns about the police response to shoplifting, many are now resorting to controversial facial recognition technology to catch culprits before they strike.
Sainsbury’s, Asda, Budgens and Sports Direct are among the high-street businesses that have signed up to Facewatch, a cloud-based facial recognition security system that scans faces as they enter a store. Those images are then compared to a database of known offenders and, if a match is found, an alert is set off to warn the business that a shoplifter has entered the premises.
It comes as official figures show shoplifting offences rose by 13% in the year to June, reaching almost 530,000 incidents. Figures reported in August showed more than 80% result in no charge.
At the same time, retailers are reporting more than 2,000 cases of violence or abuse against their staff every day. Faced with mounting losses and safety concerns, businesses say they are being forced to take security into their own hands because stretched police forces are only able to respond to a fraction of incidents.
A Facewatch camera
At Ruxley Manor Garden Centre in south London, managing director James Evans said theft had become increasingly brazen and organised, with losses from shoplifting now accounting for around 1.5% of turnover. “That may sound small, but it represents a significant hit to the bottom line,” he said, pointing out that thousands of pounds’ worth of goods can be stolen in a single visit.
“We have had instances where the children get sent in to do it. They know that the parents will be waiting in the car park and they’ll know that there’s nothing that we can do to stop them.”
Gurpreet Narwan is seen at the garden centre while being shown how Facewatch works
Staff members here have also had their fair share of run-ins with shoplifters. In one case, employees trying to stop a suspected shoplifter were nearly struck by an accomplice in a car. “This is no longer just about stock loss,” said James, “It is about the safety of our staff.”
However, the technology is not without its critics. Civil liberties groups have warned that the expansion of this type of technology is eroding our privacy.
Silkie Carlo, director of Big Brother Watch, called it “a very dangerous kind of privatised policing industry”.
Facewatch is seen in operation as retailers look to crack down on crime.
“[It] really threatens fairness and justice for us all, because now it’s the case that just going to do your supermarket shopping, a company is quietly taking your very sensitive biometric data. That’s data that’s as sensitive as your passport, and [it’s] making a judgement about whether you’re a criminal or not.”
Silkie said the organisation was routinely receiving messages from people who said they had been mistakenly targeted. They include Rennea Nelson, who was wrongly flagged as a shoplifter at a B&M store after being mistakenly added to the facial recognition database. Nelson said she was threatened with police action and warned that her immigration status could be at risk.
Gurpreet’s profile can be seen on the Facewatch database
“He said to me, if you don’t get out, I’m going to call the police. So at that point I turned around and I was like, are you speaking to me? Then he was like yes, yes, your face set off the alarm because you’re a thief… At that point, I was around six to seven months pregnant and I was having a high-risk pregnancy. I was already going through a lot of anxiety and, so him coming over and shouting at me, it was like really triggering me.”
The retailer later acknowledged the error and apologised, describing it as a rare case of human mistake.
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A spokesperson for B&M said: ‘This was a simple case of human error, and we sincerely apologise to Ms Nelson for any upset caused. Reported incidents like this are rare. Facewatch services are designed to operate strictly in compliance with UK GDPR and to help protect store colleagues from incidents of aggressive shoplifting.”
The cloud-based technology has critics who argue that it amounts to a misuse of personal data and privacy
Nick Fisher, chief executive of Facewatch, said the backlash was disproportionate.
“Well, I think it’s designed to be quite alarmist, using language like ‘dystopian’, ‘orwellian’, ‘turning people into barcodes’,” he said.
“The inference of that is that we will identify people using biometric technology, hold and store their own, store their data. And that’s just, quite frankly, misleading. We only store and retain data of known repeat offenders, of which it’s been deemed to be proportionate and responsible to do so… I think in the world that we are currently operating in, as long as the technology is used and managed in a responsible, proportionate way, I can only see it being a force for good.”
Yet, there is obviously widespread unease, if not anger, at the proliferation of this technology. Businesses are obviously alert to it, but the bottom line is calling.
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