Rachel Reeves acknowledged the UK economy is “not working well enough for working people” as she announced that her second budget will take place on 26 November, amid mounting speculation over tax increases.
The later than usual date will probably lead to weeks of speculation about how the Treasury will raise additional revenue – but the chancellor hopes to use the time to set out new pro-growth reforms.
She insisted on Wednesday that the economy “isn’t broken” but conceded there was “more to do”. “Bills are high. Getting ahead feels tougher. You put more in, get less out. That has to change,” Reeves said.
Ruth Curtice, the director of the Resolution Foundation thinktank, said the 26 November statement would probably be “one of the toughest second budgets in living memory”.
She added: “With higher gilt yields currently adding over £3bn to debt interest costs, and over £6bn of policy U-turns announced since March, the chancellor is already on track to miss her fiscal rules. With a growth downgrade also likely, significant fiscal tightening will be needed.”
Announcing the date of the budget, the Treasury said the chancellor had commissioned the Office for Budget Responsibility (OBR) to prepare forecasts for the economy and public finances.
The OBR has been revising its expectations for productivity over the summer, which have tended to be more optimistic than those of other independent institutions, including the Bank of England. The result is widely expected to be a weaker growth forecast.
If the projections put Reeves on course to miss her fiscal rules, allies say she is determined not to respond by reopening the spending review plans she set out earlier this year, and instead will seek tax increases.
She is understood to have been exploring several tax-raising measures over the summer months amid concern that the shortfall in the government finances could be worth up to £40bn. The Treasury is consulting on changes to how the gambling industry is taxed, which Gordon Brown has advocated as a source of funding to tackle child poverty.
The chancellor and the prime minister have, however, committed to sticking to Labour’s manifesto promise not to raise taxes on “working people”, including through income tax, national insurance and VAT.
The late November budget date will give Reeves time to prepare the ground for potential tax changes, raising the prospect of a high-stakes party conference season as Labour heads to Liverpool at the end of September.
Reeves plans to make a series of announcements in the run-up to the statement designed to increase growth. These are expected to include giving the green light to Northern Powerhouse Rail, and a number of fresh changes to the planning system.
She hopes to persuade the OBR to take these and other recent measures, including May’s India trade deal and EU reset, into account in its forecasts. She will also urge ministers at next week’s cabinet meeting to go further on slashing regulation.
Reeves is wary of spooking bond markets, which the government relies on to fund its borrowing.
The yield, or interest rate, on 30-year UK government bonds retreated on Wednesday, reversing a jump the previous day that saw it hit a 27-year high.
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The Bank of England governor, Andrew Bailey, told MPs later on Wednesday that recent moves in bond markets had been driven by global factors, and the UK was “in the middle of the pack” rather than an outlier.
Keir Starmer has strengthened economic expertise in No 10 in recent days, including poaching Reeves’s deputy, Darren Jones, and hiring a new economic adviser, the former deputy Bank of England governor Minouche Shafik.
These moves were widely seen as an effort by the prime minister to take closer control over economic policy – but Reeves’s allies insist she supports the shake-up.
There are hopes in the Treasury that readings on the state of Britain’s economy could improve before budget day, helping the chancellor to strike a more upbeat tone after a difficult first year in power.
Reeves could benefit from updated International Monetary Fund forecasts at its annual meeting in Washington in mid-October.
However, there are concerns that the outlook for the economy could worsen amid pressure from Donald Trump’s trade war and rising inflationary pressures hitting the cost of living for households.
Business leaders also warn that a tax-raising autumn budget would add to the headwinds facing the economy, hitting growth and adding to the financial strain on households.