We have finally got there! After an unprecedented, almost interminable, period of contradictory speculation and counter-briefing the UK government has finally produced its economic statement. In the days ahead all eyes will be on the unsentimental judgment of the global financial and domestic political markets.
In a not uncompetitive field this budget may in time prove to be the UK’s most pivotal fiscal event of the decade. Traditionally this set-piece annual speech projects the extensive reach and power of the Treasury within the British State; ordinarily it would provide a showcase for the Chancellor of the Exchequer to draw a compelling narrative of her economic ambitions and vision.
Yet Rachel Reeves’ room for manoeuvre has narrowed with each passing month over the course of this year as economic indicators on government borrowing, growth, inflation and balance of payments figures have deteriorated. The visible ebbing away of her authority and confidence culminated three weeks ago in a hastily arranged breakfast press conference in which she prepared to ‘roll the pitch’ that the budget would herald a hugely significant change of direction. Even then she was excruciatingly unwilling to spell out explicitly what she had in mind; the markets and financial commentators have reluctantly concluded that the current government has no consistent strategy to achieve the economic growth on which all its future spending commitments are based.
As I pointed out in July, the Chancellor arguably missed her best political opportunity to rip-up the government’s manifesto promise at last year’s General Election not to raise any of the Big Three taxes (income tax, employee National Insurance and value added tax) by presenting the unforeseen impact of incoming President Trump’s tariffs and the need to ramp up radically defence and security expenditure as a ‘force majeure’ event. Instead that self-imposed fiscal straitjacket and the achingly orthodox adoption of ‘stability‘ and ‘investment‘ rules (which will, I suppose, have gone down well with senior Treasury mandarins) has been compounded by the fundamental reality that this is – and always will be – a high-tax, high-spending government forever fearful of the reaction of the bond markets.
The trouble with setting down such a rigid template in an era of such fast-changing, unpredictable and perilous waters is that a government with over three-and-a-half years to run and still boasting a working majority of 150 (even after suspending some of its most vocal dissident MPs) acts as if it is compelled to negotiate daily with its backbenchers rather than behaving with the authority that its overwhelming parliamentary mandate ought to command.
Reminiscent of the persistent chatter and damaging uncertainty in the run-up to last year’s budget, the Treasury once again allowed shambolic speculation to spill over regarding the levying of an array of new taxes. Whilst the prospect of punishing ‘the rich’ will always play well with much of the Labour Party’s grassroots (especially those increasingly attracted by the radicalised Green Party) the imposition of a conventional wealth tax was never on the cards for the simple reason that it would make our already sluggish economy an outlier at a time when the name of the game is to ensure the UK remains internationally competitive. A wealth tax would also require a huge data overhaul by HMRC on property and pensions valuations which would almost certainly take several years to establish and implement. Nevertheless, presumably in order to placate internal dissent, the government never conclusively ruled it out, with the predictable chilling effect it has had on overseas investors, high net worth Britons and most worryingly of all, increasing numbers of our most talented twenty-somethings.
On the other hand, tearing up its manifesto pledge on income tax would only have served to diminish further the already woeful levels of faith and trust in mainstream politics, even if justified on the basis of being a necessary step on the road to improvements in living standards by the time of the next election. The clear beneficiaries of all this policy uncertainty amidst a fragmented, deeply divided electorate will be populist insurgent political movements.
Inevitably at times like this financial commentators turn their minds to historical parallels. Any comparison between the numerically similar Starmer and Blair 1997 landslides has long since been forgotten; instead memories go back further still – to the mid-1970s, when the second Wilson government rapidly lost control of the public finances by paying off public sector strikers with inflation-busting wage settlements and introducing a slew of new taxes on the relatively well-off that were promptly avoided and raised negligible new income to the public coffers (sounds familiar?). Today one of the most worrying canaries in the mine is the woeful labour market data. Unemployment is now at a post-pandemic high; although the Bank of England insists that inflation is now on a downwards trajectory from its current 3.6% level, wages for those in work are rising fast – at 4.2% in the private sector and 6.6% for the public sector despite – in the latter case, at least – little evidence of commensurate productivity improvements.
So over recent months the chatter in and around the City of London has been that we may be close to that famous moment in the autumn of 1976, when the sharply falling value of sterling meant we were unable to service our debts, and we needed an IMF bailout. The then governing party, albeit with a virtually non-existent majority, lacked the political will to implement welfare cuts (another abject parallel to today’s situation) so the necessary measures were imposed without democratic oversight.
If this all sounds a little far-fetched, it is worth reflecting that once a welfare entitlement has been granted it is almost impossible for it to be pared back. This is by no means a British phenomenon alone – the demands on the welfare state made by voters in the developed world only ever go in one direction; more worryingly there is no sign that any western governments are capable of confronting the scale of the challenge to reduce public sector debt, despite this task being made more urgent by interest rates (and the cost of servicing the said debts) having finally returned to normal levels.
It is probably worth putting the UK’s current plight into some context. A recent IMF report into the world’s 41 advanced economies warned that we have the sixth highest debt, fifth highest deficit and third highest borrowing costs. It is a situation that is deteriorating to the extent that levels of borrowing during much of the current year have been the highest monthly figures since records began thirty years ago, with the exception only of the Covid-19 period five years ago. The bond markets are more tolerant of debtor nations than their reputation might suggest, but (and it is a big ‘but’ in present circumstances) only where they are satisfied that the country in question has a clear plan to reduce its borrowing – and that it appears politically capable of enacting that plan.
It is true that even within the G7 family, the US and France have even worse debt and deficit profiles than the UK. Their borrowing costs, however, are lower because the former has the benefit of being the global reserve currency and the latter’s fortunes are linked to the European Central Bank and its membership of the EU’s single market. By contrast the UK economy is smaller, more isolated and the holding of UK gilts is exposed to a greater historic reliance on overseas investors than our international competitors. It should come as no surprise that speculation has been rife in recent months than in the event of a major global market correction, holdings in UK bonds would be particularly vulnerable.
Politically there are stronger parallels between today’s situation and Norman Lamont’s 1993 budget. Then, as now, an election had in the previous year been fought and won with pledges not to raise tax that had proved impossibly difficult to keep. A number of tax rises were introduced that would take effect in future years in order not to adversely impact short-term growth. In the fullness of time that budget would be regarded as an important reset, convincing the markets of the then government’s serious intent in dealing with runaway public spending and laying the foundation for a strong medium-term economic recovery. But none of this worthy effort shifted the dial on the political popularity of the then government; within a matter of months Lamont had been replaced – it is not difficult to see how this may mirror the fate of the current administration and some of its leading personalities.
In the days ahead closer scrutiny of the Office of Budget Responsibility’s small print (despite its own dismal track record almost from the day it was set up for medium-term economic forecasting) will reveal the extent to which Chancellor Reeves’ fiscal rules remain achievable. Convincing the markets of her seriousness of intent in the heat of an election campaign has come at a fearful cost. Overly optimistic past forecasting on growth will probably result in even higher future debt (I well remember how at financial statements in my early days as the City’s MP I would listen to a bombastic Gordon Brown confidently claim he was on the road to balancing the books – yet at each and every budget that glorious moment always seemed to be a tantalising three years away). But the truth is that past economic shocks have invariably led to the dismantlement of apparently hard-and-fast fiscal rules; from the global financial crisis to the pandemic and potentially to the current situation. Yet there never seems to be any balancing mechanism for bringing debt back down in the good times. Perhaps a centre-left government’s only viable strategy is to argue forcefully against Treasury orthodoxy – by contrast, the Starmer/Reeves administration is characterised by timidity and passivity in the face of the coming economic storm.
Which brings me to a final, more general, thought. Much of the institutional overhaul that Rachel Reeves has been proposing over the past year has been sensible enough, if lacking in the radical urgency that unarguably this era of malaise requires. Her Mansion House speech in the summer spoke of deregulatory reforms to boost growth and productivity; yet launching this much awaited competitive drive has begun not with a slash and burn approach to regulation and compliance, but with a roster of consultation and the creation of yet more bureaucratic processes. The governance of the UK over recent years seems to have been in the hands of bright, well-intentioned and thoughtful people – advisors, academics and civil-servants, with even a smattering of politicians fitting this bill – none of whom seem capable of implementing change or delivering on their agenda.
Small wonder the patience of the British public is now so close to breaking point that even many sensible, moderate folk are clamouring for a much more radical approach to dealing with the impending financial reckoning.
Written on 26 November 2025 by The Rt Hon Mark Field, former Member of Parliament (MP) for Cities of London and Westminster and Consultant at Buchler Phillips, an independent boutique firm with an impeccable Mayfair London heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.