Budget 2024 Preview: Short Term Pain for Long Term Gain?

In recent years the UK has weathered numerous economic storms. Double digit inflation, energy shocks, the Liz Truss 2022 mini budget, and a once in a century pandemic. But since the 2008 Financial Crisis, UK economic growth has been anaemic, and productivity growth sluggish. Public spending has grown but services have worsened, national debt sits at 97% of GDP.

This is the harsh economic context politicians of all political parties have to acknowledge, but only Labour’s Chancellor Rachel Reeves, has the unenviable challenge of charting the country’s economy to calmer more prosperous future.  

A Historic Budget

On Wednesday the famous Treasury red box will be held aloft on the steps of Downing Street. As Rachel Reeves stands in front of the world’s media outside the famous black doors she will make history. The first female Chancellor of the Exchequer in the role’s eight hundred year history, and delivering the first Labour budget for fifteen years.

The decision not to hold an emergency summer budget following Labour’s landslide win in July, has meant uncertainty has hungover every Government Departments spending plans, freezing new Minister’s in uneasy stasis.

The Labour Government have spent months ‘rolling the pitch’ for tax rises and difficult spending choices. Regularly, warning a £22bn blackhole lies at the heart of the nation’s finances.

On Monday, Prime Minister Sir Keir Starmer reiterated that his government had inherited “unprecedented circumstances”, in a speech in which he warned Wednesday’s budget “must be realistic about where we are as a country” if we are to “fix the foundations”.

What SMG Expect in the Red Box

SMG is regularly asked what to expect in the budget- there can be no guarantees until the Chancellor speaks at the despatch box. But the months of briefing and framing in the pre and post election period, can give strong clues.

It is likely the new Government will pitch to the nation, businesses and voters alike, that the route to breaking the cycle of economic malaise, stagnant living standards, faltering public services runs through a difficult period of facing up to touch choices. Equipped with a landslide majority in parliament, Sir Keir Starmer is in the rare position of being able to afford to be unpopular- for a time.

Under the banner of “fixing the foundations for change”, SMG expects the chancellor to walk a fiscal tightrope, seeking to increase taxation to fund day to day government spending, while increasing borrowing to for increased capital investment.

It is likely some taxes on ‘unearned income’ will rise, in addition to manifesto promises such as levying VAT on Private Schools, increased taxation on private equity investors and tightening the non-dom tax loophole. Rises in capital gains tax, and Employer National Insurance contributions have also been heavily trailed in the press.

Spending cuts will likely be a mixed picture. The preannounced rises in the capped bus fares, from £2 to £3, and introduction of means testing of the Winter Fuel Payment have clearly been efforts to announce bad news early.

However, there will need to be investment in public services and infrastructure, for the Government to meet its stated manifesto missions. The Chancellor will likely amend the Government’s fiscal rules, taking into account both public assets as well as liabilities, it is expected this will create headroom for £50bn for investment in green technologies, road and rail infrastructure.

 The Affordable Homes Program is likely to be given £500m of additional funding to support the delivery of social housing, while over a billion will be pledged to rebuild 50 ageing schools per year. The Chancellor is likely to end the long running uncertainty over the future of High Speed 2, and is expected to confirm the project will terminate at Euston Station as originally planned.

Devolved Combined authorities and Mayors are likely to be big winners on Wednesday. The new government has invited regional mayors into Downing Street regularly, and it is possible Mayors will see powers further extended into areas of strategic planning and housing delivery, with new multiyear funding settlements and greater freedom to invest in strategic projects. However, uncertainty remains over the financial future of local authorities, with one in four councils facing bankruptcy over the next two years.

Labour were elected on a manifesto for “change”. On the campaign trail, the party promised the Government would be “laser focused” its central mission, delivering economic growth. The Chancellor will be tasked with improving the health of the nation’s finances, economy, infrastructure and services in parallel. The Chancellor will hope difficult decisions on tax and spend will be necessary short term pain, for long term economic gain.