Next week, British Finance Minister Rachel Reeves will unveil a transformative budget, marking a significant shift in economic strategy for the UK’s sixth-largest global economy under
Prime Minister Keir Starmer’s Labour government. This first Labour budget in over a decade will focus on substantial public spending increases and tax adjustments.
Reeves, a former Bank of England economist, has pledged fiscal responsibility, aiming to avoid an unsustainable rise in public debt. This caution stems from the 2022 bond market turmoil triggered by former Conservative Prime Minister Liz Truss's unfunded tax cuts, a move Reeves is keen not to replicate.
Expected to feature a range of revenue-generating initiatives, her budget has stirred concerns among households and businesses. Labour’s intentions to strengthen worker protections have already raised apprehensions about potential cost impacts.
“This budget has drawn unprecedented interest,” stated Amanda Tickel, Global Leader for Tax and Legal Policy at Deloitte. “It’s a new government facing extensive challenges, and the anticipated departure from past policies has everyone watching closely.”
Labour's July electoral success rested largely on its pledge to improve essential public services, including overcrowded prisons, deteriorating public housing, and the overburdened health sector. However, public support has been tempered by expectations of a tight budget, compounded by recent cuts to pension fuel subsidies and controversies over Starmer’s high-value gifts from donors.
Reeves aims to implement approximately £40 billion ($52 billion) in fiscal measures, primarily through tax hikes and selective spending cuts, as part of her commitment to fund daily government operations without resorting to borrowing. While Starmer has vowed to shield “working people,” Reeves has left open the possibility of increasing social security contributions for businesses—a move that could impact wages and hiring—as well as broadening the tax base for income.
Potential tax targets include capital gains, dividends, inheritance, non-domiciled residents, fuel, and possibly private pensions, despite the UK's tax burden already being at its highest since the post-WWII period.
Balancing Tax Increases with Investment
Alongside these tax measures, Reeves and Starmer are likely to relax borrowing limits for infrastructure investment, reflecting a dual approach of fiscal tightening paired with strategic spending aimed at long-term economic growth. Photo by Simon Dawson / No 10 Downing Street, Wikimedia commons.