OBR leak brings Rachel Reeves’s hopelessly sloppy Budget to a fittingly messy end

So, it’s a shambles then. The accidental release by the Office for Budget Responsibility of their analysis of, and therefore everything in, the Budget is, in its own dismal way, a fitting denouement to a pre-Budget of unprecedented messiness – including a pre-announcement of a hike in income tax rates shortly to be rescinded – U-turns following U-turns and a government chasing its own tail. Whatever happens to “the grown-ups in the room”? Disastrous as it was, even Liz Truss didn’t bodge the running of her notorious Budget quite as badly as this.

The normal course of events has been turned upside down. In the not-so-distant past, even a minor leak about, say, beer duty or stamp duty would necessitate the resignation of a cabinet minister. The “technical error”, effectively publishing the Budget before the chancellor, is extraordinary and unprecedented; a car crash. This has been the “most chaotic lead-up to a Budget in living memory”, Tory leader Kemi Badenoch has said, and she is not wrong. The sight of the chancellor having to deal with this almighty mess on the hoof in the Commons was so sad you almost felt sorry for her.

As to the substance of the 2025 Budget, shall we get to that? I would say it’s a play in three acts. It’s about Rachel’s Choice, which was driven by Rachel’s Mistake. Where that leaves Rachel’s Future is actually in a more hopeful place than many have assumed.

It is noticeable that the chancellor has recently stepped away from talking about “growth” and started to talk more about “unfairness”. The reason the chancellor has made this choice, on behalf of the government, is to signal that this is indeed a Labour government delivering Labour values. Or, more unkindly, a tax-and-spend Budget of a kind we’d mostly forgotten about. That’s what her conception of “economic fairness” and her pledge that “I will not return Britain to austerity, nor will I lose control of public spending with reckless borrowing” really means.

For a Labour leadership that spent so much time and energy moving the party from Corbynism to the centre ground, what we are witnessing is a quite unexpected shift, if not a lurch, to the left, at least in language – and only partly camouflaged by the mission to repair the public finances. The government is putting a clear divide between itself and Reform and the Conservatives.

The two most high-profile items on offer symbolise the nudge leftwards: the freeze on income tax thresholds, which will cost every “working person” more; and the uncapping of child benefit. Lifting hundreds of thousands of kids out of poverty will be wildly popular with Labour MPs and activists – and with disillusioned voters who’ve floated off to the Greens, the Liberal Democrats and the independent MPs. It won’t be quite so popular with the electorate more generally (with the complicating factor that Nigel Farage also backs lifting the cap – but only for “British” families, whoever they are).

Rachel’s Mistake, plainly, was the manifesto commitment not to raise income tax rates, national insurance or VAT. This was just as stupid a thing to do as it was when Boris Johnson made a similar promise in 2019, and as various others have in the past. It binds the hands of any chancellor in a way that cannot be sustained in tougher times or a national emergency (as happened in the aftermath of the Covid pandemic, when we had to start paying off the vast mortgage the nation took out in 2020-21).

In Reeves’s case, it badly distorted the options available to her last year, hence her decision to rely too much on raising employers’ national insurance contributions to help fill the deficit she discovered on taking office. Now it is making her raise lots of smaller taxes and free thresholds for the rest of the decade – blunting incentives quite badly – and none of that is necessarily very good at increasing investment by reducing consumption. Thus did the “original sin” of this Labour government, enshrined in the 2024 manifesto, not to raise taxes on “working people”, give rise to the unsound choices Rachel is subsequently being pushed into making.

Which brings us to Rachel’s Future. Whether she will ever last long enough in the Treasury to see the step change upwards in the UK’s trend growth rate is doubtful – the impact will be felt at full force in about a decade. In the meantime, as the OBR and others indicate, growth will be more muted. But here one can allow for a little optimism. Reeves and the Labour government are rightly petrified of a crisis in the public finances, which would mean more deeply unpopular emergency measures and a sense of panic.

All that long and painful work Keir Starmer and Reeves did to make Labour trusted to run the economy would be wasted, and the party would be out of office for a generation, whenever the next election comes. It would have impressed the markets more if she had opted for a clear, immediate hike in the basic rate of tax, raising reliable and suitably substantial funding, but the smorgasbord may prove to be an acceptable second best. Investors, indeed, despite her recent chaotic Budget planning, seem to like Rachel more than anyone else, and so long as she sticks to her fiscal rules, they’ll be happy. Despite everything, including zero presentational skills, she may be around a while longer.