On Wednesday 30 October, the UK Government will present its October Budget to the UK Parliament. Much speculation has been made on what the country can expect from the announcement, as the government faces significant fiscal constraints while being expected to fix public services, improve infrastructure, and promote economic growth. The urgency for growth and investment, coupled with repeated pledges not to increase the UK’s biggest revenue-generating taxes, has cultivated a sense of uncertainty around the upcoming Budget. How can the government achieve its ambitions without increasing the UK’s largest taxes? What role do fiscal rules play in determining the government’s approach?

In this blog, Evie Milligan draws together some insights and looks at some of the stakeholder asks of the UK Government.  

Labour Pledges 

Looking back at Labour’s general election campaign, the then-opposition party embraced the spirit of hope and ambition as it sought to emphasise its core campaign pledge of bringing about “change”. Key priorities within the manifesto centred around wealth creation and growth for communities, with the King’s Speech also following a similar sentiment. The party promised to establish Great British Energy, deliver a better deal for working people, and create a National Wealth Fund, with Keir Starmer emphasising Labour’s “mission-driven government” was ready to pave the way for national renewal. These commitments were matched with promises to not increase taxes on the working people, as the Labour Party definitively ruled out an increase in VAT, Income Tax and National Insurance – the UK’s three largest sources of revenue.  

The excitement around the newly elected government quickly faded once a Treasury public audit revealed £22bn of unfunded projects inherited from the previous government, which led Rachel Reeves to announce £5.5bn of savings for this year and £8.1bn for next year to tackle overspending. Savings for this year included making Winter Fuel Payments means-tested and ceasing road and railway schemes.  

What can be expected from the Budget?  

The repeated narrative of “tough decisions” has echoed throughout the Labour Party in recent months since taking office – including a downbeat address in the Rose Garden of Downing Street by the Prime Minister said to have dampened confidence – but what exactly does this mean for the public, business, and stakeholders? Well, the decision to not increase VAT, Income Tax and National Insurance means a tax increase on Capital Gains Tax, Inheritance Tax and various duties, including that on fuel and alcohol as likely options. The Chancellor is set to increase the National Insurance rate for employers as well as lower the threshold for when employers start paying the tax. Responding to criticism over this increase, the government has argued campaign pledges to not increase tax applied only to “working people”. It is also understood that Rachel Reeves will increase the tax on vaping products, alongside an increase in tobacco duty. The Telegraph has reported Labour will seek to cut £3bn from the welfare bill over the next four years by tightening access to sickness benefits.  

The government has confirmed it will change the way its self-imposed fiscal rules on borrowing and investment are measured, which could help unlock up to £50bn for infrastructure spending. This comes as the party faced frequent calls, including from the Scottish Government, to change fiscal rules to allow it to borrow more to fund public services. On Monday 21 October, John Swinney further developed this by appealing to the Chancellor to consider public sector net worth instead of debt in its fiscal rules, alongside sustained public investment of at least 3% of GDP each year to bring investment in line with the OECD average. Government sources have also told the BBC that Rachel Reeves is looking to make tax rises and spending cuts to the value of £40bn, to which Paul Johnson, the director of the Institute for Fiscal Studies, told the BBC Radio 4’s Today programme that some of the £40bn would most likely be covered by “slight changes in the fiscal rules” or by tax rises proposed by the government already.  

Who wants what from the Budget? 

Amongst Budget speculation, various stakeholders have outlined their key asks for the upcoming Budget. According to the latest research from accountancy and business advisory firm, BDO LLP, nearly a quarter of businesses in Scotland (24%) want assurances from the Chancellor that full expensing capital allowances will remain for the life of this Parliament. Six business groups including the Scottish Chambers of Commerce, the Scotch Whisky Association and the Scottish Tourism Alliance have written to Rachel Reeves calling on her to cut the tax burden on Scottish whisky in her Budget. This call was further backed by the SNP, which has argued the Treasury is “holding back one of Scotland’s key industries”. Other Scottish Government calls include the removal of the charity lottery sales cap.  

The Chancellor has also faced calls to abandon plans to raise and extend the Windfall Tax on oil and gas companies after an Aberdeen and Grampian Chamber of Commerce survey showed confidence in the future of the North Sea had reached its lowest point since 2004. Meanwhile, Energy Saving Trust has called for greater incentivisation to support the role out of clean heat, which would involve introducing a Clean Heat Market Mechanism and a Future Homes Standard. The organisation has also requested additional information on the government’s Warm Homes Plan and Local Power Plan.  

Child Poverty Action Group has called on the government to scrap the two-child limit, remove the benefit cap, and invest in children through social security, which they argue will immediately improve the standards of living for the 4.3 million children living in poverty in the UK. The Scottish Council for Voluntary Organisation has asked for greater clarity on the UK Shared Prosperity Fund replacement and urged the government to introduce multi-year spending reviews and a sustainable funding settlement for Scotland.  

Things can only get better?  

Although the Labour Party was prepared to inherit what it described as the “worst set of economic circumstances since World War Two”, it’s hard to imagine anything could have prepared them for a £22bn “blackhole” in public finances. As many fear the worst in the upcoming Budget, questions remain around Labour’s definition of “working people” and how much extra money is truly needed to fill the government’s public finances. Whether the Wednesday Budget manages to answer these lingering questions and address stakeholder concerns remains to be seen. Will this be a budget of “change”, or has that hope and ambition now shifted into a pipe dream as the party attempts to navigate this unimaginable set of economic circumstances. All we know for certain is that it will be a Budget which embraces the “harsh light of fiscal reality” and “things will get worse before they get better”.