Britain’s Labour government is preparing a budget on Wednesday that will raise taxes to reduce debt and fund public services, while attempting to reassure both investors and voters.
Prime Minister Keir Starmer has pledged to tackle long NHS waiting lists and ease the ongoing cost-of-living crisis, aiming to strengthen Labour’s appeal as the far-right Reform UK party gains traction in opinion polls.
Chancellor of the Exchequer Rachel Reeves faces the challenge of supporting households while signalling to financial markets that public finances remain under control. “I will not return Britain back to austerity, nor will I lose control of public spending with reckless borrowing,” Reeves said ahead of the budget.
Ahead of the announcement, Reeves indicated measures such as above-inflation increases to the minimum wage and pensions, alongside freezes on rail fares and prescription charges. But closing a projected £20 billion ($26 billion) shortfall is expected to rely on tax rises that could affect workers and small businesses.
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For many, the timing is difficult. “It’s kind of been disastrous in the last two years, with increases on food, duties, staff costs, and household expenses,” said James Fitzegerald, landlord of the west London pub Thatched House. “Things are only going in one direction, and we really need help from the government to make it viable.”
Britain faces a deficit approaching 5% of gross domestic product, elevated inflation, and a stagnating economy amid rising unemployment. The Office for Budget Responsibility is reportedly set to downgrade growth forecasts for each year of the current parliament, compared with its projections from March.
Markets will closely watch Reeves’ speech, with a negative response potentially triggering a sell-off in UK debt, raising borrowing costs and complicating government spending plans.
Labour has struggled to stimulate growth since returning to power in July 2024, following 14 years of Conservative rule. Reeves’ tax increase on businesses in last year’s budget has been blamed by some for sluggish growth. “The cost of living remains the number one issue for working people, and the economy isn’t working well enough for those on the lowest incomes,” Reeves said Tuesday. “Too many people are still struggling to make ends meet.”
Policy reversals have affected Starmer and Reeves’ credibility, including the shelving of proposals to cut disability benefits and pensioner fuel payments after a backbench rebellion. A planned income tax increase, which would have broken campaign pledges, was also reportedly abandoned. Instead, Reeves is expected to freeze income tax thresholds, effectively pushing more workers into higher brackets.
Additional measures under consideration include levies on gambling, a so-called mansion tax on high-value properties, and caps on pension benefits. The Health Department also announced that the sugar tax will expand to cover pre-packaged milkshakes and other milk-based drinks.