Why The UK Budget Is So Late and What Is At Stake For Rachel Reeves And The Treasury

Rachel Reeves has opted for postponement Harvesting extra time by delaying the UK budget to 26 November she is intent on generating growth strategies to tackle an estimated £40 billion hole in public finances. The move is more than a stalling tactic With public spending under immense strain Reeves must convince the Office for Budget Responsibility OBR that her intended measures will revive the nation’s lacklustre productivity and limit the need for tax increases.

Behind the delay lies a formidable set of challenges The greater the fiscal gap the steeper the tax rises that may be necessary However Reeves aims to deploy productivity enhancing initiatives over revenue raising new taxes She is tipped to unveil major infrastructure proposals such as the revival of Northern Powerhouse Rail seeking to convince the OBR that carefully chosen investments funded by higher borrowing can yield tangible improvements to economic growth

The focus on growth is multifaceted Trade agreements with the EU the United States and India are being presented as key boosters for the economy The government has already put a £1 billion annual package into employment support with the ambition that getting the long term sick back to work will bring down benefit costs But major new welfare savings now seem unlikely following a chaotic retreat from planned £5 billion cuts in the summer Charlie Mayfields review on disability and employment is expected to stress spreading best business practices rather than new legal obligations for employers

Planning reform remains a cornerstone of Labour’s economic recovery plans Reeves is keen to show that new bills to accelerate infrastructure delivery and streamline planning rules could provide a crucial lift to growth She is also weighing reforms that would ease some environmental protections and reduce legal obstruction that delays the building process Meanwhile the Treasury is drawing up measures to slim down regulatory requirements for businesses with more government agencies likely facing mergers or closure

Technical options are also being explored The Bank of England might be persuaded to slow the pace of quantitative tightening to avoid driving up borrowing costs The Treasury is examining shifting more towards issuing shorter term gilts reflecting today’s lower ten year borrowing costs compared to longer dated debt though this could mean more price volatility Adopting the International Monetary Fund’s suggestion to limit the OBR to a single fiscal forecast per year is under consideration aiming to reduce uncertainty for businesses and households

The big unknown is whether these efforts will suffice Some forecasters warn of a possible doom loop in which rising debt repayment costs compel further tax increases which stifle spending and growth thereby threatening state revenues and leading to yet more austerity Reeves had previously promised last year’s £40 billion tax rises were a one off but that hope is rapidly fading At stake is not simply a delayed budget but the trajectory of the UK’s fiscal and economic health in what is shaping up to be one of the most testing periods in recent memory