This upcoming Wednesday, Rachel Reeves, the reigning Chancellor of the Exchequer in the UK, is set to announce the Labour Party’s opening budget in over a decade, a historic moment dating back to Alistair Darling’s latest contribution in March 2010. A challenging period it was, with the UK economy being unbalanced by the worldwide financial catastrophe and a budget deficit totalling £163 billion for that year.
In stark contrast to the previous situation where global events stirred the economy, the UK’s present struggles are widely seen as self-imposed. The triggering factor, largely noted as the Brexit decision in 2016, has led to an alarming £40 billion deficit in the country’s fiscal situation. Keir Starmer, currently serving as Prime Minister, has not only stamped out any likelihood of a Brexit reversal, he’s also declined any potential reintegration into the EU’s Single Market and Customs Union.
Surrounding the imminent budget lies the issue of considerable national debt, an economy in stagnation due to chronic underfunding, and growth restrictions caused by trade barriers with a primary partner, the EU. Reeves is faced with the gargantuan task of not only patching the national fiscal deficit, but also rallying fresh avenues of financing to stimulate the economy and develop physical infrastructure. Despite deeply committing to a doctrine of substantial investment, she will undoubtedly encounter challenges in sourcing the necessary resources.
The task at hand would be daunting to any chancellor, however, despite victorious in the July election, the Labour Party is now feeling the heat, as its poll numbers wilt. High-end donations recently received by Starmer coupled with several other contentious issues have prematurely ended Labour’s grace period. Its appeal is expected to slide further in the aftermath of the budget.
In the current political atmosphere, the woes of Labour may embolden the two hard-right contenders, Robert Jenrick and Kemi Badenoch, currently competing for the leadership of the Conservative Party. This could potentially shift the party’s philosophy closer to Nigel Farage’s Reform Party, ensuring that an escalating wave of right-wing populism does little to offer political steadiness in the UK.
In light of the current scenario, the budget presents itself as the inaugural substantial economic challenge for the fresh government. Striking a delicate equilibrium is imperative: whilst ensuring financial stability is essential for providing crucial investment opportunities, an increase in taxation has the potential to curb growth. Credibility is paramount when it comes to expenditure plans. In a situation paralleling Ireland, the UK government must prioritise expedience and cost-effectiveness considerations whilst executing major investments. With the hurdle of considerable budgetary deficits, maintaining the faith of international investors becomes a necessity to ensure fundraising is feasible at a justifiable cost.
Primarily, in the aftermath of what could be described as a turbulent reign under the Conservatives, it falls to Reeves to reassure the populace, commercial sector and investors that a phase of stability is on the horizon. Measures to stimulate long-term progression should be implemented promptly.