Rachel Reeves Budget: Will It Make Or Break Her Career

As backdrops to a make-or-break Budget go, Friday’s update on how much money the government is currently borrowing was from from ideal for Rachel Reeves.

According to the Office for National Statistics, some £10 billion more has been put on the Treasury’s tab so far this year than was originally forecast.

Coincidentally, this is almost exactly the same as the amount of spare cash – fiscal headroom in the jargon – that Reeves left herself at last year’s Budget.

Put simply, she has run out of money.

As the chancellor prepares to deliver her second Budget on Wednesday, the figures were further evidence of the deep financial hole in which she finds herself.

Nick Ridpath of the Institute for Fiscal Studies said: “This overshoot is driven by a combination of lower-than-expected tax receipts and higher-than-expected borrowing by councils and other bodies outside of central government control.”

The grim data only served to confirm that Reeves faces a hellish economic and political challenge if she is to balance the books while not setting fire to what remains of Labour’s standing in the country.

Despite her well-documented decision to U-turn on plans to shatter Labour’s election manifesto by putting up income tax, it is clear that what she unveils will still contain a lot of pain for voters already suffering a cost of living crisis.

Throw in the never-ending speculation about Reeves’ political future, and that of her boss Keir Starmer, and you can understand why many Labour MPs are preparing to watch the Budget through the gaps between their fingers.

“We need her to succeed because if she flops then we end up in a doom loop about how long she’ll last and how low Keir will last,” one backbencher told HuffPost UK. “We need to try and move on from all of that.

“She needs to get this one right and the next one right because we want to go into the next election being able to offer voters some goodies.”

Speculation about a “smorgasbord” of smaller tax rises, rather than one big one, to raise something in the order of £30 billion have many in Labour anxious about a repeat of George Osborne’s omnishambles Budget of 2012.

Back then, the Tory chancellor introduced a range of measures aimed at boosting the Treasury coffers which ended up spectacularly backfiring.

They included the infamous “pasty tax”, which imposed VAT on hot takeaway food. After a furious public backlash, Osborne was eventually forced to U-turn.

Neil Foster, a former trade union official who advised Reeves in opposition, has has been brought back in to the chancellor’s team, and is helping to bombproof the Budget by identifying and removing any policies which could have unintended consequences.

He was also the original architect of Labour’s pre-election pledge to remove VAT on fuel bills, leading to speculation that the chancellor could announce the measure as a way of putting more money in people’s pockets.

Reeves will confirm that the two-child benefit cap will also be scrapped in a move which will be warmly welcomed by Labour MPs, but comes with a hefty £3 billion a year price tag.

She is expected to pay for that by increasing the tax paid by gambling companies, despite warnings by the industry that this will lead to job losses and a rise in illegal betting.

The chancellor may also be tempted to finally end the freeze on fuel duty, and reinstate the 5p cut introduced by Rishi Sunak when he was chancellor.

But, while this could raise billions, she may ultimately decide that increasing costs for drivers while also incurring the wrath of The Sun newspaper mean it is not worth the political pain that would follow.

Dozens of Labour MPs have also put their names to former frontbencher Richard Burgon’s call for a 2% tax on those with assets of more than £10 million – an idea already rejected by Reeves.

Nevertheless, it is an idea which is gaining currency among an increasing number of Labour MPs, not all of them the usual left-wing suspects.

“We need a wealth tax because it’s the right thing to do and because it helps us where the actual threat is,” one moderate backbencher told HuffPost UK, referring to the challenge Labour face on the left from the Greens and Lib Dems.

One MP said he wanted the Budget to “deliver demonstrable investment across the UK, including in every English region from the south west to the north east”.

“Look at how the Tories delivered in government from 2010 to 2015 – pick a story and stick with it,” he said. “If it’s infrastructure then be bold, but don’t do lots of politically damaging little tax rises.

“I’d like to see big wins for clean energy infrastructure. Make the threat from Reform to jobs real and tangible.”

A Whitehall source said the government’s unpopularity, and the universal acceptance that the economy is in the gutter, may actually end up helping the chancellor.

“Expectations for the Budget are low, people know it’s going to be hard,” the insider said. “The main risks for Rachel are that the figures are worse than the market has already priced in, or that some of the smaller tax-raising measures she announces unravel like the winter fuel cut or the farming tax did.

“Usually a government in difficult circumstances will see a Budget as an opportunity to change the political weather. With this one, it’s about not making things any worse than they already are.

“On the other hand, if they end up pleasantly surprising people by cutting VAT on heating or lifting the 2-child cap, then she could come out of it well.

“Ultimately, she’s set her own tests in terms of debt, NHS waiting lists and the cost of living, and whatever happens, she’ll be able to say ‘this is what I said I’d do and I’ve done it’.”

Chris Hopkins, political research director at pollsters Savanta, said there is “little the chancellor can do this week to reverse Labour’s ailing polling figures” so she might as well be bold.

“On the one hand, avoiding any difficult decisions may feel like the right way to go, but it isn’t going to win any voters back to regain much trust among the electorate,” he said.

“Perhaps something bolder from Labour would make more sense: yes, it may be unpopular, but Labour’s popularity can hardly get any worse.

“If Labour truly believe that difficult decisions are necessary now for Britons to feel the benefit down the line, maybe it’s a risk worth taking, as right now the government have so little to lose.”

Speaking to reporters on his way to the G20 summit in South Africa, Keir Starmer said Reeves will deliver “a Labour Budget with Labour values”.

Unless she manages to avoid the many pitfalls that lie in her way, it could well be her last.