Reeves Pledges History-Making UK Budget as Markets Await Details

(Bloomberg) — Rachel Reeves said her crucial first budget on Wednesday will be a “new settlement” for the UK, as she prepares to announce a package of tax rises and increased borrowing plans that will define British politics for the rest of the decade.

“In 1945, we rebuilt after the war; in 1964, we rebuilt with the white heat of technology; and in 1997, we rebuilt our public services,” Reeves said in an interview with the Observer newspaper, referring to famous budgets in Labour’s history. “We need to do all of that now.”

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Reeves — who will be the first female chancellor to deliver a budget — is due to reveal up to £40 billion ($51.9 billion) in tax hikes and spending cuts in her fiscal plan, including increasing payroll levies on business and hiking capital gains tax and inheritance tax. She wants to use the funds to cover a £22 billion shortfall she said she inherited from the previous Conservative administration, while also spending more on the National Health Service and ensuring no government department faces real-terms cuts to their funding.

She’s also set to give herself space to borrow as much as an extra £70 billion over the course of the Parliament to invest in capital projects by changing the debt measure the government targets.

“This is a new settlement on Wednesday to rebuild our country and seize the massive opportunities in technology and energy that are out there,” Reeves said. “If we can unlock that investment, public and private, then we can do great things as a country again.”

Yet Reeves is braced for a potential backlash on Wednesday, with Labour facing criticisms that it is due to break its manifesto promises on tax, all while financial markets watch the government’s borrowing plans closely. On tax, the party had committed in its manifesto not to increase taxes on “working people,” and explicitly ruled out increasing income tax, the national insurance payroll tax and VAT.

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Instead, the Chancellor is due to hike national insurance paid by employers, drawing charges that she will hurt people who run businesses, who could also be considered to be “working.” Speaking on BBC TV on Sunday, Education Secretary Bridget Phillipson declined to comment on whether a small business owner constituted a “working person.”

“Working people will not see higher taxes in the pay slips that they receive,” Phillipson said. “I can’t speculate on precise tax measures.”

The other concern for Labour is how the fiscal plan will be received by financial markets. The UK’s borrowing costs have risen in recent days, in response to Reeves signaling that she is set to borrow more for investment. Phillipson defended the borrowing plans, saying the government would be careful with how it spends public money.

“There’s actually been widespread support for what the Chancellor has announced where it comes to her fiscal rules,” she said. “We do need to invest in the infrastructure of our country.”

The budget will also include £1.8 billion to go into an expansion of childcare services, including an increase in the number of nurseries across the country. Bloomberg reported in September that Reeves was considering proposals for a funding package to expand childcare services.

In its election manifesto, Labour promised to create 3,000 nurseries in schools at a cost of £35 million, to be paid for by ending the party’s key policy to end the VAT exemption on private school fees. The Treasury also said that £1.4 billion will go to a nationwide schools rebuilding program, that’ll aim to fund 50 school renovations a year.

—With assistance from Alex Wickham.

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