Autumn budget live: major tax rises expected as Rachel Reeves prepares to set out first Labour budget in 15 years | Politics

George Osborne is credited with popularising the baseline theory of economic policy, which says the government always has the advantage in politics because, at budgets, it sets the baseline, and so if the opposition wants to do anything different, it has to explain what spending it is going to cut (if it wants to reduce taxes), or what taxes it is going to raise (if it wants to increase spending). Voters are inclined to punish parties that declare they are going to depart wildly from the baseline, and so in recent years the main opposition party is often wary of making extravagant manifesto promises.

Today Rachel Reeves is resetting the baseline – and, in doing so, she is creating a trap for the Conservatives.

Kemi Badenoch is not replying to the budget statement today, but she is the favourite to become Tory leader on Saturday and in an article for the Telegraph she has condemned Reeves for changing the debt defintion, which she describes as a “con trick”. She says:

At first sight, unleashing a wave of money to build new roads, railways and hospitals sounds great. Yet, nothing in this world is ever free. Changing the rules doesn’t change the fundamental position the UK is in; there is no magic money tree which has suddenly been miraculously found. This is a technical change which, however it is dressed up, is ultimately more borrowing. And it’s about time that Labour levelled with people about the consequence of their attempts to fiddle the figures …

Technical changes have real world consequences. Ultimately, debt is debt. The more we take on, the more risky and less resilient our country becomes to investors. As soon as Reeves dribbled out news of her con trick, yields on UK bonds started to rise. Some commentators now expect interest rates to be cut more slowly. Every month that interest rates don’t come down means another 120,000 households across the country fixing their mortgages higher than they otherwise would. And, over time, higher gilt rates means higher taxes or lower spending elsewhere. For a Labour party which mercilessly hounded Liz Truss in 2022 for real-world impacts, the principle is the same. Actions have consequences – and Labour appear to have learnt nothing.

If Badenoch does become Tory leader, she will have to say whether or not she intends to revert to the debt definition that Reeves is abandoning (underlying public sector net debt). And, if she won’t rule that out, Labour will claim that the extra investment sanctioned as a result of the new definition will be at risk.

In her article Badenoch also says that changing the debt definition is a breach of the line in Labour’s manifesto saying: “Our fiscal rules are non-negotiable.” She has a point; if the definition used in the rules is changing, clearly they were negotiable. But, as with saying national insurance in the manifesto only meant employees’ national insurance (see 8.34am), this is another real or apparent broken promise that voters may actually welcome.

Badenoch and other Conservatives argue that, because Reeves is changing the definition of debt used in her fiscal rules, people will end up paying more for their mortgages. In an explainer yesterday, Richard Partington said the evidence so far does not back this up. He said:

Despite the rise in gilt yields in the past month, average two-year fixed residential mortgage rates have fallen modestly, from 5.43% a month ago, to 5.39% on Monday, according to the data provider Moneyfacts.

High street banks price their fixed mortgage deals on money market “swap rates”, which are influenced by expectations for the Bank of England’s base rate. Financial markets expect the Bank will cut its base rate from 5% at present to about 3.75% before the end of next year.

Analysts expect Reeves’s budget will not have a significant impact on the Bank’s decisions, because the chancellor is not expected to dish out vast dollops of near-term inflationary stimulus.

This morning the Financial Times splashed on the news that UK government borrowing costs reached a post-election high yesterday. The Conservatives claim borrowing costs are going up because traders are concerned about the extent to which government borrowing, and government debt, will rise, because Rachel Reeves is changing the definition of debt used in her fiscal rules. But analysts say that other factors are also in play, and that this is nothing like the rise in borrowing costs triggered by the Liz Truss mini-budget.

On his business live blog, Graeme Wearden says this morning there has been a slight fall in government borrowing costs.

The CBI, which represents businesses, and particularly large employers, has said the 6.7% increase in the national mimimum wage could harm investment. John Foster, the CBI’s chief policy and campaigns officer, said said the national living wage was a “valuable tool” for protecting the incomes of the poorest in society. He went on:

But with productivity stagnant, businesses will have to accommodate this increase against a challenging economic backdrop and growing pressure on their bottom line.

That pressure will make it increasingly difficult for firms to find the headroom to invest in the tech and innovation needed to boost productivity and deliver sustainable increases in wages.

By convention, the leader of the opposition always replies to budget statements. With other big financial statements from the chancellor, it’s the shadow chancellor who replies. Today will be Rishi Sunak’s final PMQs, but his last Commons speech as Tory leader will be his response to Reeves.

Speaking ahead of the budget, Sunak said putting up employers’ national insurance would be a “complete betrayal”. As the Mail reports, he said:

Rachel Reeves promised that her plans were fully funded, and she promised that she wouldn’t change the debt target because that would be “fiddling the figures”.

We already know that those promises are totally worthless because she is going to change her fiscal rules so she can go on a borrowing spree.

If she was to compound that by breaking her promise to the British people not to raise taxes on working people by increasing national insurance, that would be a complete betrayal.

The Tories argue that, even though workers do not directly pay employers’ national insurance, if firms have to pay more, employees are ultimately affected because there is less money for pay rises.

Good morning. Rachel Reeves, the chancellor, will today seek to reset the trajectory of public spending and taxation for the rest of this parliament – perhaps for a decade, based on Labour’s pre-election rhetoric – with what is expected to be the biggest tax-raising budget in history, at least in cash terms. Larry Elliott and Pippa Crerar preview it here, in our overnight story.

In recent years budgets have become two-week news events, with many of the main measures being covertly, or overtly, announced in advanced by the Treasury, instead of being unbundled as a surprise in the hour-long Commons statement. This year that has been happening even more than usual, to the extent that government insiders are saying that there will be no surprises in the speech this afternoon. That means that Reeves won’t use her last two minutes to unveil an out-of-the-blue tax cut or spending bonanza destined to grab the news headlines; it doesn’t mean that there won’t be plenty of interesting news in the budget, and things we did not know. With most of the big announcements, we have a broad indication of what’s coming, but not the detail.

A ‘no surprise’ budget is very Keir Starmer (there were no surprises in the manifesto, or the king’s speech either – Starmer is more interested in governing than in media manipulation) and this means there should be no risk of the financial markets panicking (Liz Truss-style) because they have been caught unawares. But the tactic can backfire. George Osborne wanted the story of his 2012 budget to be his decision to cut the top rate of income tax, but that was leaked in advance and so on the day and afterwards the media focused instead on matters like the pasty tax, which led to the budget being seen as an omnishambles.

In comments about the budget released overnight by the Treasury, Reeves says:

My belief in Britain burns brighter than ever. And the prize on offer to today is immense.

More pounds in people’s pockets. An NHS that is there when you need it. An economy that is growing, creating wealth and opportunity for all. Because that is the only way to improve living standards.

And the only way to drive economic growth is to invest, invest, invest. There are no shortcuts. To deliver that investment we must restore economic stability.

The reference to “more pounds in people’s pockets” has had some commentators scratching their heads, because this is not a giveaway budget, but perhaps that is best understood by the reference in the previous sentence to “the prize on offer”; she is talking about what the budget might deliver in the years ahead, not tomorrow. But the minimum wage announcement will put more pounds in some people’s pockets.

The Treasury is also saying the budget will end austerity. In its overnight press release, it says:

[Reeves] will make clear that this budget rejects austerity, instead prioritising economic stability, investment and reform. The budget will ensure funding to cut hospital waiting lists, unlock affordable homes and new investment to rebuild schools. Meanwhile, working people won’t face higher taxes in their payslips in line with the manifesto commitment not to increase taxes on income tax, VAT or employee national insurance.

The chancellor will reflect on the tough decisions she has had to make to restore economic stability, on spending and welfare by cracking down on fraud, tax avoidance and waste, and making sure every penny of taxpayer money is spent wisely.

This is a rewrite of the Labour manifesto, which promised no increase in national insurance, and did not specify that the pledge only applied to employees’ national insurance. Labour claims this was implicit in the pledge because the manifesto talked about not raising taxes for workers. There will be an argument today about whether this is outright dishonesty and a broken promise, or standard political slipperiness, because employers’ national insurance is due to rise by a lot. But even if people do view this as a broken promise, the impact may be limited. Voters are willing to accept broken promises when they believe the decision involved is the right one.

Today we will be focusing almost exclusively on the budget. But there will be full coverage of PMQs, Rishi Sunak’s last as Tory leader. I’m Andrew Sparrow, and I am writing the blog this morning, but later Graeme Wearden, who normally writes the business live blog, will be joining for the budget coverage.

Here is the timetable for the day.

9am: Keir Starmer chairs a budget cabinet, where Rachel Reeves will brief colleagues (or at least those who have not been following the news for the past fortnight) on what will be in the budget.

Noon: Keir Starmer faces Rishi Sunak at PMQs.

12.30pm: Rachel Reeves delivers the budget.

2.30pm: Richard Hughes, chair of the Office for Budget Responsibility, holds a press conference about the budget and the OBR’s analysis of it.

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