Voters are backing Reeves now – but she needs her gamble to pay off before the next election

The short-term politics of Rachel Reeves’s Budget are clear. Taxes that affect most voters’ pay are not increased. Even the duty on petrol remains unchanged, while the much anticipated extension of the freeze of income tax thresholds was notable by its absence.

Yet, at the same time, spending on public services is increased this year and next – including (above all) on the health service. And there was even a one penny cut in the price of draught beer sold in pubs.

Much of a £40bn increase in taxes (the biggest tax hike since 1993) is visited – in the first instance at least – on business, most notably through a 1.2 per cent increase in employers’ national insurance. Following on from the two cuts in employee national insurance introduced by the Conservative government, this tax has now become primarily a tax on business – rather than those whom they employ.

Otherwise, the burden falls on those with assets; those who can afford to send their children to private school – and on those who have been trying to pay less than they owe the taxman.

This all looks rather different from the “tough choices” about which the prime minister was talking a few weeks ago. After all the doom and gloom of recent weeks, he and the chancellor may well be hoping that a Budget that ultimately seemingly inflicts little pain on “working people” will help to reverse some of the decline in the government’s popularity in the polls.

Yet it is doubtful that this Budget represents a long-term political strategy for delivering Labour at least two terms in office. The central aim of the government – and the reason why it has seized on a new way of calculating debt in order to create room for more capital spending – is to promote economic growth. However, although the Office for Budget Responsibility anticipates the fiscal loosening introduced by the Budget will increase growth in the next two years, thereafter it reckons growth will be lower than it forecast in March.

A projected average growth rate of around 1.5 per cent a year certainly does not signify a fundamental change in the relatively anaemic performance of the British economy since the 2008-9 financial crisis.

Not least of the reasons for the OBR’s apparent pessimism is that the increased tax on business risks a reduction in business investment. Meanwhile, it expects inflation to be higher, mostly tracking at a little above the Bank of England’s target of 2 per cent, with an attendant potential impact on interest rates. Equally, while real incomes are expected to rise in the short term, they are expected to fall back again somewhat as the next election looms in 2029.

Meanwhile, although overall public spending has been increased in real terms this year and next, thereafter the Treasury’s figures point to public spending growing less rapidly than the economy as a whole. Consequently, it is far from clear that this Budget finds a solution to the central challenge facing the government – how to generate the economic growth needed to fund better public services for an ageing society without dramatically increasing the tax burden.

Rather, public spending is projected by 2028-9 to represent nearly 45 per cent of the economy, five points up on where it stood before the pandemic, while taxes take up a record high of 38 per cent of the economy.

It is little wonder that – in his response to the Budget – Rishi Sunak felt able to throw at Labour the traditional charge of it being a party of high taxes and high debt. That said, at present, voters are seemingly more concerned about the state of the public services than they are about taxes and debt. But we cannot presume they will feel the same way if Britain’s fiscal dilemma looks no closer to being resolved by the time of the next election.

John Curtice is professor of politics, Strathclyde University, and senior fellow, National Centre for Social Research and UK in a Changing Europe. He is also co-host of the ‘Trendy’ podcast