LONDON (AP) — Won with a landslide victory Last year, the British Labor government submitted a budget It was billed as a one-time tax increase to shore up public finances, reduce debt, reduce the cost of living and stimulate economic growth.
A year later, inflation remains high, government borrowing is rising, and the economy is stagnant. The annual budget, to be announced on Wednesday, is expected to include further tax increases in a bid for a similarly elusive economic boom.
Laing Newton-Smith, head of the Confederation of British Industry, a business group, said on Monday: “Rather than making progress, we feel like we’re stuck in ‘Groundhog Day’.”
Businesses aren’t the only ones concerned. Alarmed by the government’s consistently dismal poll ratings, some Labor MPs are mulling the once-unthinkable idea of sacking them. Prime Minister Keir Starmerleading them to victory in less than 18 months.
Luke Trill, director of polling firm More in Common, said voters “don’t understand why positive change isn’t happening.”
“This may be the last bar for the government.”
There’s not much room for maneuver
the government says Treasury Secretary Rachel Reeves He will make “tough but right decisions” on the budget to reduce the cost of living, protect public services and keep debt under control.
She has limited room for maneuver. Britain’s economy, the world’s sixth largest, has been below its long-term average since the 2008-2009 global financial crisis and the centre-left Labor government. Selected in July 2024 It is struggling to deliver the promised economic growth.
Like other Western countries, Britain’s finances have been strained by the coronavirus pandemic, the Russia-Ukraine war and the costs of US President Donald Trump. global tariffs. The UK has taken on the additional burden of Brexit, which has cost the economy billions of dollars since leaving the European Union in 2020.
The government currently spends more than 100 billion pounds ($130 billion) a year on servicing Britain’s national debt, about 95% of annual national income.
Adding to the pressure is the fact that Labor governments have historically had to work harder than Conservative governments to win over business and business. financial market Be financially sound.
Reeves is mindful of how financial markets react if the government’s numbers don’t add up. short-lived Liz Truss becomes Prime Minister The policy ended in October 2022 after unfunded tax cuts disrupted financial markets, weakened the value of the pound and raised borrowing costs.
Luke Hickmore, investment director at Aberdeen Investments, said the bond market was the “ultimate reality test” of budget policy.
“When investors lose confidence, borrowing costs rise sharply and political leaders have little choice but to change course,” he said.
Pre-budget signals are mixed.
Labor MPs have blocked the government’s attempts to slash Britain’s huge welfare bill, ruling out the possibility of public spending cuts like those seen during 14 years of Conservative government.
Therefore, the government’s main means of revenue will be tax increases.
“We’re definitely not in the position that Rachel Reeves would have liked,” said Jill Rutter, a senior fellow at the Institute for Government think tank.
Mr. Rutter said Mr. Reeves had to decide whether to “fill a huge black hole in our finances with tax increases or spending cuts,” adding that the economy had “reinvigorated” and allowed for more spending and lower taxes.
The budget was decided after weeks of messy text messages that saw Reeves. She signaled that she intended to raise income taxes. – Break an important campaign promise – before making a hasty change of direction.
In his Nov. 4 speech, Reeves laid the groundwork for the income tax hike, arguing that the economy is worse and the global outlook is worse than the government expected when he took office.
In response to opposition from Labor MPs and reports of a better-than-expected fiscal situation, the government said it would prefer to use more small-scale revenue-raising measures, such as a condominium tax on luxury homes and a pay-per-mile tax on electric car drivers.
Governments will try to ease this burden with sweet measures, such as increasing pension payments for millions of retirees by an inflationary excess or freezing rail fares.
Critics argue for higher taxes on employees and businesses. tax increase The money imposed on businesses in last year’s budget will push the economy further into a doomed loop of low growth.
Patrick Diamond, a professor of public policy at Queen Mary University of London, said it would be difficult to satisfy both markets and voters.
“We can give confidence to the market, but that would probably mean higher taxes, which would be very unpopular with voters,” he said. “On the other hand, while trying to minimize the impact of tax increases can instill confidence in voters, markets become nervous when they feel the government does not have a clear fiscal plan.”
Big deal for Leaves and Starmer
The budget comes amid growing concern among Labor MPs over Mr Starmer’s dismal poll ratings. Opinion polls consistently show Labor trailing its leader, the far-right Reform Britain Party, by a wide margin. nigel farage.
Downing Street earlier this month proactively told the press that Mr Starmer would fight no matter what, sparking a flurry of speculation. A challenge to his leadership. Mr Starmer’s attempt to shore up his authority has backfired. The report has sparked near-panic anxiety among Labor MPs, who fear the party will suffer a crushing defeat in the next election.
The elections do not need to be held until 2029, and the government continues to hope that economic measures will spur higher growth and ease fiscal pressures.
But analysts say the budget blunder could put another nail in Starmer’s government’s coffin.
“Both Starmer and Reeves are really unpopular,” Rutter said. “They may be holding out for now, but I don’t think people necessarily have a great prospect that they’ll stick around for the duration of the legislative session, which runs until the next election.”
