Chancellor Rachel Reeves presented in 14 years by promising to put an .
Authors
- Nathan Critch
Research Associate, Department of Politics, University of Manchester
- Andy Westwood
Professor of Government Practice , University of Manchester
- Dave Richards
Professor of Public Policy, University of Manchester
British governments typically see budgets as an opportunity to present policies providing short-term gain in terms of public popularity, even if they do little to improve Britain’s long-term economic prospects. Over the past ten years, governments have adopted and then abandoned , and .
The last Conservative government’s budget contained a range of tax cuts, most notably a 2p cut on ³Ô¹ÏÍøÕ¾ Insurance. Little consideration was given to the medium-term . Labour inherited a funding squeeze, alongside the need to balance the books over a five-year period based on the previous .
This kind of short-termism is a within British economic policymaking. A winner-takes-all, majoritarian electoral system encourages governments to over a longer-term economic strategy.
Here’s how Reeves is taking a different approach in her first budget.
1. Long-term strategy
Reeves has underscored Labour’s commitment to long-termism through various institutional reforms. The government had already announced the creation of to drive a new industrial strategy. This will now be accompanied by a new to provide private investment into infrastructure.
The launch of the will scrutinise spending decisions. And the Office for Budget Responsibility’s role in of capital investments, government policies and departmental spending will be enhanced.
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2. Investing for growth
Alongside a few surprises such as an uplift to the minimum wage, increased tax on private jets and the continued freeze on fuel duty, the main theme of the budget was investment-led growth for the long-term.
To that end, Reeves has around debt to enable more headroom for investment. She also raised national insurance contributions for employers to fund this investment wave.
These measures will be used to plough such as engineering, biotechnology and medical science. The chancellor committed £1 billion into the aerospace industry, £2 billion into electric vehicle development, and £500 million into life sciences. In total, the public investment will amount to .
3. Infrastructure projects
Reeves also committed to funding a number of high-profile . On transport, the TransPennine Route upgrade, East West Rail, and HS2’s link into central London were all green lit. She also to build 1.5 million new homes in five years. Additionally, £20.4 billion in R&D funding was also protected in the budget.
4. Regional growth
The budget highlighted the importance of , reflecting Labour’s emphasis on continued devolution . Reeves has committed to providing an extra £6.6 billion to the devolved nations through the .
She also revealed that the would receive integrated financial settlements from 2026-27. These moves indicate some ambition and long-term vision around empowering devolved governments to drive regional economic growth.
5. Public services
Another long-term focus of the government has been “fixing the foundations” of Britain’s . Reeves linked low levels of investment to . As such, she committed to significant spending on education and health, alongside £1.3 billion to address the crisis of .
These measures signpost a renewed interest in an to address Britain’s economic weaknesses and drive growth. Both require a focus on the medium and long-term.
Remaining challenges
Collectively, these measure suggest some long-term thinking by Labour, but do they go far enough and will they stick?
Delivering on a long-term industrial strategy requires greater , especially between the Treasury and the Department for Business and Trade. But other departments too, will be key to driving long-term growth and must be brought on board with Labour’s approach .
And while the integrated financial settlements will empower the West Midlands and Greater Manchester, the approach stops short of fully downloading financial independence to the regions. A focus on selective regions also only adds to in the powers regions have. A systematically thought-out approach that covers the whole UK would go further, but remains remote.
Finally, while the government has spent big on education and health, real departmental funding is only set to . Pre-budget, about the effect tight funding settlements might have for non-protected departments, especially when these cuts come to bite .
The spectre this raises for Labour is that a short-term squeeze on day-to-day departmental spending risks undermining the work it has done to secure long-term investment for growth.
