Officially, Labour Party sources said the change of strategy was due to a better-than-expected pre-budget forecast from the Office for Budget Responsibility (OBR), which put the gap between planned government spending and Reeves’s fiscal rules at £20 billion. It was a boost that stemmed from a smaller government debt forecast due to gilt market movements during the 10-day window the OBR used for its projection.
However, that’s only part of the story. Raw party politics also played a crucial part in this shift. And as the chancellor’s intended budget strategy has unraveled under an unprecedented public spotlight, it has exposed all the chaos at the top of the government.
It’s absolutely no coincidence that Reeves’ volte-face happened just as Downing Street launched a clumsy attempt to head off a leadership challenge that was aimed at ousting Starmer after next week’s budget is revealed.
A budget that breached the Labour manifesto would have made such a challenge much more likely, as many of the party’s MPs — including scores of “newbies” elected for the first time last year — fear they would lose their seats if it was ditched. And the retreat now means the prime minister will likely be able to avoid an attempted coup. That is, at least until after next May’s elections to the Scottish and Welsh parliaments and local English authorities.
Meanwhile, among the options Reeves is now likely considering instead of raising tax rates is cutting income tax thresholds — less politically damaging, as thresholds weren’t covered by the manifesto promise.
But even that isn’t so simple: If Reeves raised the £12,570 personal allowance at which the 20 percent basic rate starts, it would be regressive and hit many of the “working people” Labour has vowed to protect. Therefore, a cut in the £50,271 threshold, where the 40 percent rate kicks in, seems more likely. However, even that would hit those considered middle income. It would be less contentious to just lower the threshold for the 45 percent rate, which starts at the £125,140 mark.