Speech Unspun
Rachel Reeves, Chancellor of the Exchequer
The Budget, 30th October 2024
INVEST IN TRPLICATE
Madam Deputy Speaker, on 4 July, the country voted for change. This Government were given a mandate: to restore stability to our economy and to begin a decade of national renewal; to fix the foundations and deliver change through responsible leadership in the national interest. That is our task, and I know that we can achieve it…. The only way to drive economic growth is to invest, invest, invest.
The promise of the government is growth. Their method is to invest. This is Rachel Reeves’s education, education, education. This is the bet of this government in one word three times repeated. Either this triple investment adds up to growth or it will appear instead as spend, spend, spend. All the ambitions of the cabinet members who preside over large public services rest here too. This budget raised £40 billion in taxes and, apart from a perfunctory exercise in efficiency, cut nothing back. This is the return of the dividing line that Gordon Brown used all his career, even past the point of absurdity, of investment versus cuts. However, Starmer and Reeves have taken it on – investment to procure growth.
FIRST FEMALE
This is not the first time that it has fallen to the Labour party to rebuild Britain. In 1945, it was the Labour party that rebuilt our country out of the rubble of the second world war. In 1964, it was the Labour party that rebuilt Britain with the white heat of technology, and, in 1997, it was the Labour party that rebuilt our schools and our hospitals. Today, it falls to this Labour party—to this Labour Government—to rebuild Britain once again. And while this is the first Budget in more than 14 years to be delivered by a Labour Chancellor, it is the first Budget in our country’s history to be delivered by a woman. I am deeply proud to be Britain’s first ever female Chancellor of the Exchequer. To girls and young women everywhere, I say: let there be no ceiling on your ambition, your hopes and your dreams. Along with the pride that I feel standing here today, there is also a responsibility to pass on a fairer society and a stronger economy to the next generation of women.
Watch out for the three-part Labour history. Attlee, Wilson, Blair: the winners. Starner does it a lot and here Rachel Reeves picks up the habit. It is always worth noting a moment of social progress and the first female Chancellor of the Exchequer is such a moment. Not before time, too. Rachel Reeves occasionally receives criticism for remarking upon the fact that she has broken through but the criticism is wrong. Apart from the necessary reminder to a society that is slow to change, this is also a personal moment. Every Chancellor is a person too who once upon a time harboured an ambition. It matters that the position be seen to be open to all-comers. We have had Chancellors of different ethnicities before – all of them, it has to be said, Conservatives – but not until today a woman.
IT’S NOT US, IT’S THEM
Let me begin with the public finances. In July, I exposed a £22 billion black hole at the heart of the previous Government’s plans—a series of promises that they made, but had no money to deliver—covered up from the British people and covered up from this House. The Treasury’s reserve, set aside for genuine emergencies, was spent three times over just three months into the financial year. Today, on top of the detailed document that I provided to the House in July, the Government are publishing a line-by-line breakdown of the £22 billion black hole that we inherited, which shows hundreds of unfunded pressures on the public finances this year, and into the future too. The Office for Budget Responsibility has published its own review of the circumstances around the spring Budget forecast. It says that the previous Government “did not provide the OBR with all the information to them” and that, had the OBR known about these “undisclosed spending pressures that have since come to light”, then its spring Budget forecast for spending would have been “materially different”. Let me be clear: that means that any comparison between today’s forecast and the OBR’s March forecast is false, because the previous Government hid the reality of their public spending plans.
There has been a lot in the press, and there was a lot in this speech, about the culpability of the previous government for the mess of the national public finances. This is all standard politics, for all the gnashing and wailing it generates. Rachel Reeves is here doing no more than trying to emulate George Osborne who masterfully managed to pin the blame for a global financial crash on Labour profligacy. This passage contains the pivotal accusation, which is that the Conservative government failed to level with the Office for Budget Responsibility, the consequence of which is that the public finances are in an even more dire state than anyone could have realised. The intriguing question is how long Rachel Reeves will get out of this accusation. How long will it be before blaming the previous incumbents starts to pall? Politics is very quick these days and it may not last long.
MISSION CRITICAL
Moving on to economic growth, today’s Budget marks an end to short-termism, so I am pleased that, for the first time, the OBR has published not only five-year growth forecasts but a detailed assessment of the growth impacts of our policies over the next decade. The new charter for Budget responsibility, which I am publishing today, confirms that this will become a permanent feature of our framework. The OBR forecasts that real GDP growth will be 1.1% in 2024, 2.0% in 2025, 1.8% in 2026, 1.5% in 2027, 1.5% in 2028 and 1.6% in 2029. The OBR is clear: this Budget will permanently increase the supply capacity of the economy, boosting long-term growth. [Interruption.] It may sound shocking to Conservative Members, but this Government are boosting long-term economic growth.
This might prove to be the most consequential passage in the Budget speech. The Starmer government has delayed defining itself until this Budget and the only candidate as the government’s governing idea has been investment leading to growth. These growth numbers are nowhere near good enough to rest a government on. They will have to get better and it may be that the fortunes of the Starmer government – and of Rachel Reeves as Chancellor – will depend on whether that part of her speech in which she stresses investment will fix the problem defined in this paragraph, which is that growth is not good enough.
THE VALUE OF LABOUR
I know that for working people up and down our country, family finances are stretched and pay cheques do not go as far as they once did, so today I am taking steps to support people with the cost of living. It was the Labour Government who introduced the national minimum wage in 1999. That had a transformative impact on the lives of working people. As promised in our manifesto, we asked the Low Pay Commission to take account of the cost of living for the first time. I can confirm that we will accept the commission’s recommendation to increase the national living wage by 6.7% to £12.21 an hour, worth up to £1,400 a year for a full-time worker. And, for the first time, we will move towards a single adult rate, phased in over time by initially increasing the national minimum wage for 18 to 20-year-olds by 16.3%, as recommended by the Low Pay Commission, taking it to £10 an hour—a Labour policy to protect working people, being delivered by a Labour Government once again.
It is by no mean an exclusively Labour virtue to increase the remuneration of the least well off. On the contrary, increasing the level of the minimum wage had become the standard method by which Conservative Chancellors liked to show they were not entirely made of stone. But, still. There should always be something in a Labour Chancellor’s Budget and this rise in the minimum wage, along with the workers’ rights (which Reves introduced later with a good joke at the expense of Kemi Badenoch’s management style) are the characteristically Labour moments in the speech.
READ MY LIPS
I have made an important choice today: to keep every single commitment that we made on tax in our manifesto. I say to working people, I will not increase your national insurance, I will not increase your VAT, and I will not increase your income tax. Working people will not see higher taxes in their payslips as a result of the choices I am making today. That is a promise made and a promise fulfilled.
Various Cabinet ministers have got into an unholy mess trying, in vain, to make sense of the definition of working person but, when it came, this was still a resounding and powerful claim. To the extent that £40 billion has been found without the need for any of the taxes listed to be levied is a good piece of politics and – to be fair to a government whose news management has had a bad run -a good exercise in the massaging of expectations.
INSURANCE POLICY
Any responsible Chancellor would need to make difficult decisions today to raise the revenues required to fund our public services and restore economic stability. So in today’s Budget, I am announcing an increase in employers’ national insurance contributions. We will increase the rate of employers’ national insurance by 1.2 percentage points to 15% from April 2025, and we will reduce the secondary threshold—the level at which employers start paying national insurance on each employee’s salary—from £9,100 a year to £5,000. This will raise £25 billion per year by the end of the forecast period. I know that this is a difficult choice; I do not take this decision lightly.
Yet the cost of ruling out all the taxes on labour is, of course, that the greater part of the £40 billion raised comes from a rise in the national insurance contributions from employers. There’s little doubt the Chancellor would have preferred to avoid this and no doubt at all that it contradicts the message of investment and growth which otherwise runs through the speech but the election campaign really left her with no other options. If you rule out taxes on work and you define yourself as the investment Chancellor versus the cutting Tories, what else do you have left? It may, in those constrained circumstances, be wise to raise a large sum with the one tax as that allows the news on capital gains tax and inheritance tax, which follow this section, to be better than trailed in the newspapers.
PUBLIC SPENDING
To rebuild our country, we need to increase investment. The UK lags behind every other G7 country when it comes to business investment as a share of our economy. That matters. It means that the UK has fallen behind in the race for new jobs, new industries, and new technology. By restoring economic stability, and by establishing the national wealth fund to catalyse private funding, we have begun to create the conditions that businesses need to invest, but there is also a significant role for public investment. For too long, we have seen Conservative Chancellors cut investment and raid capital budgets to plug gaps in day-to-day spending.
Having raised more money than was demanded by the hole in the financial projections, the Chancellor then set out disbursing the excess funds. There were sections on education, defence, science policy, roads, housing, climate change and a “keep Andy Burnham happy” section. There is always a moment in the first Budget after a change of government that you smell the change. In truth, any Conservative Chancellor could have talked about investment and the importance of the fiscal rules but it is doubtful that they would have signalled their intentions on spending quite as Rachel Reeves did in the latter stages of her speech today. There was no final surprise – these days Budgets are over before they start – but the final sections were, tellingly, all about the National Health Service which will receive a £22.6 billion increase in its day-to-day budget. Whatever was the opposite of a black hole, this was it.
Very very good. Thank you.