A pre-Budget speech by a Chancellor always risks being a “waffle bomb”, as Kemi Badenoch put it, because the Chancellor cannot tell anyone what will be in the Budget before the Budget itself. Nonetheless Rachel Reeves made a clear and important point in her speech yesterday: she is willing to break promises, and become even more unpopular, rather than risk longer-term economic stability.
Downing Street’s political bet is that stability secures growth by 2029, and that voters will reward that toughness and determination at the next election. The unknown behind that gamble is whether Nos 10 and 11 can hold the line, stick together, and ride out the unhappiness and vitriol of both voters and the Parliamentary Labour Party until then.
But if Labour’s strategy is to do the right thing for the long term, rather than the popular thing in the short term, will they still tackle some of the really tough things facing the British economy?
At the top of that list would be scrapping the triple lock on the state pension, which makes up 42 per cent of total benefit spending. The policy guarantees that pensions increase in line with earnings, inflation, or 2.5 per cent, whichever is higher. If you keep increasing the amount the state pays out in pensions by more than employees gain in their earnings then eventually – like France – you reach the point where the average pensioner earns more than the average worker, and the financial cost to the state becomes unbearable.
This is why Mel Stride, the shadow Chancellor, previously described the triple lock as “unsustainable”. Earlier this week Nigel Farage confirmed that Reform is not committed to the triple lock – a surprisingly unpopular position for a populist party, but one that potentially frees up billions of pounds of savings. In doing so, could he have given the Chancellor some political cover to scrap the triple lock too?
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Council tax should be high on the list as well. The problem with council tax is that while most people think it just pays for bins and street lights, in reality it is how we fund social care. Or, more accurately, how we fail to fund social care: last winter, 81 per cent of councils expected to overspend on their 2025 social care budgets.
Perversely, communities with the highest needs, rather than the greatest means, pay the highest tax. At the Social Market Foundation, we believe that funding social care through a mandatory social insurance model, similar to those in Germany or Japan, would take the cost burden off local authorities.
This would in turn allow more radical, progressive reform of council tax: by taking the cost of social care out of council tax, everyone’s bill can be cut and the tax can be redesigned, so that instead of the places most in need paying the highest cost, the burden is more fairly shared across the country.
Such changes could be made in revenue-neutral ways that don’t frighten the markets. But they require political bravery and direction from Government, something many Labour MPs feel they have not seen lately.
The central political and economic mission for Labour is growth, and since the Chancellor’s calculation is that stability is a precondition for growth, she was signalling in her speech that she will put the expectations of Labour MPs who are hoping she will lift the two-child cap on benefits, behind the demands of bond markets for fiscal prudence.
But economic stability does not have to mean sticking to the status quo, or meagre incrementalism. Yet it would require boldness and vision from the Prime Minister and the rest of the Cabinet, not just a narrow focus on – as some around the table may believe – either growth in the next six months, or the political sacrifice of the Chancellor.
The challenge to those in the Cabinet and waiting in the wings, watching Reeves’s speech with an air of detachment, is that it cannot be on the Chancellor alone to make the political running.
A Budget is not a narrative, even at the best of times, and in the case of this Budget, where Labour are likely to break promises and put up taxes, it is on the PM himself to define more clearly his purpose and on the Cabinet to set out their ambition for reform.
Without that, the Chancellor’s steadfastness risks looking like treading water.
Theo Bertram is the director of the Social Market Foundation and a former No 10 adviser under Tony Blair and Gordon Brown
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