Rachel Reeves to raise taxes as PM hails ‘huge day for Britain’

So far this morning traders have been buying up UK government bonds, known as gilts, after they endured their worst week in six months in the run up to the budget. The yield on ten-year gilts, which moves inversely to the price, was down by 8 basis points to 4.22 per cent this morning, and it fell by 6 basis points on two-year gilts.

Traders have also been selling the pound on Wednesday, pushing sterling down by 0.3 per cent against the US dollar to $1.298 and 0.2 per cent weaker against the euro.

The decline is partly a reflection of the strong dollar, which has been rising ahead of Tuesday’s presidential election and the expectation of another interest rate cut from the Bank of England next week, which also weakens the pound relative to other currencies.

George Lagarias, chief economist at the audit and consultancy firm Forvis Mazars, said the chancellor will be wishing for “a non-market event” after she “communicated her intentions well in advance”.

“A spike in UK yields, despite the early information campaign, could mean that markets are becoming wary of Britain’s fiscal position,” he said.

Rachel Reeves has appeared outside No 11 holding the famous red box on the day she becomes the first woman chancellor to deliver a budget.

Reeves, wearing a dark grey suit and burgundy blouse, posed for photographs by herself and with her team of junior ministers in the Treasury.

The budget day photoshoot is a ritual for chancellors. In 2010, George Osborne held the red box that was used by William Gladstone in the 1860s.

In modern politics it is very rare for all the measures of the budget to be revealed when the chancellor speaks at the dispatch box.

Over the past few weeks Rachel Reeves and the Treasury have already announced several measures.

These include a rise in the cap on bus fares in England from £2 to £3 from next year, an end to the winter fuel payments paid to more than 10 million pensioners, a rise in the state pension of 4 per cent from April, and adding VAT to private school fees.

Several other changes have also been trailed in the media including freezing income tax thresholds, raising capital gains tax and increasing employers’ national insurance contributions.

This is to prepare both the markets and businesses for changes but also get bad news out early so attention is focused on any surprise measures that may be announced.

• Read in full: Budget 2024 predictions: what could Rachel Reeves announce?

BlackRock, the world’s largest fund manager, has gone against the grain and bought more UK government bonds over the past couple of weeks, reflecting its belief that another “mini-budget disaster” is unlikely.

Other investors have been selling UK gilts which has pushed up the yield on ten-year gilts to 4.25 per cent, up from 3.75 per cent in mid-September. Yields move inversely to bond prices.

BlackRock said the sell-off has been brought on by “jitters ahead of the UK budget announcement”, with the chancellor expected to confirm plans to change the rules to allow tens of billions of pounds more borrowing.

However, it thinks the markets’ worries are “overblown” and so, coupled with its belief that the Bank of England will cut interest rates more quickly than the US Federal Reserve, it expects bond prices to recover. “Markets are pricing in some chance of a repeat of the 2022 mini-budget disaster — an outcome we see as unlikely,” Wei Li, the firm’s global chief investment strategist, said.

Rachel Reeves is expected to unveil tax measures totalling £35 billion today, which will make it the biggest tax-raising budget since March 1993 when Norman Lamont outlined measures designed to raise £38.5 billion over a number of years.

Lamont’s package of tax increases and spending cuts was designed to address the public finances after the early 1990s recession. VAT on domestic energy bills was phased in, starting at 8 per cent in April 1994 and rising to 17.5 per cent in April 1995.

Income tax rates were adjusted, the stamp duty threshold was raised, and mortgage relief was reduced to 20 per cent.

It was one of two 1993 budgets, both of which were unpopular with the public.

Today’s budget is a “huge day for Britain”, the prime minister has said, striking an optimistic tone in which he said there is a “brighter future ahead”.

Sir Keir Starmer said on X: “After 14 years of decline, we will invest in our country — rebuilding our schools, hospitals and roads. We won’t shy away from the tough decisions to grow our economy and protect working people’s payslips. There is a brighter future ahead.”

Earlier Rachel Reeves, the chancellor, said on social media: “Politics is about choices. This Labour government chooses investment over decline.”

As reporters stood in Downing Street on Wednesday morning they were joined by a regular face who has seen many chancellors come and go over the years: Larry the cat.

The chief mouser to the cabinet office, then aged four, was adopted from Battersea Dogs and Cats Home in 2011 by the then prime minister David Cameron.

Rachel Reeves’s budget will be the 18th that Larry has witnessed since arriving in Downing Street. He has also seen eight chancellors and six prime ministers.

After Sir Keir Starmer took office in July he announced that his family would be welcoming a new Siberian kitten called Prince. The Starmers also brought JoJo with them from their home in north London. It is not yet clear how Larry, now 17, is getting on with the two younger cats.

Rachel Reeves is set to announce that a million low-paid workers will get a pay rise of more than 6 per cent next year.

Business leaders have warned it employers will suffer, especially when combined with tax rises in the budget and planned reforms of workers’ rights.

Cabinet ministers have been arriving in Downing Street for a briefing before the first Labour budget in almost 15 years.

Rachel Reeves, the first female chancellor, will lay out the big measures in her budget and how they will affect each department.

At about 11am, she will step out of No 11 and pose for photographers holding the famous red box, originally intended to carry the statement from Downing Street to the House of Commons.

At midday Reeves will sit next to Sir Keir Starmer at prime minister’s questions — Rishi Sunak’s last as Conservative leader — before getting to her feet at about 12.30pm. Immediately after her speech Sunak will deliver the response for the opposition.

The Office for Budget Responsibility, the independent watchdog, will give its assessment of the fiscal measures at 2.30pm.

Rachel Reeves should pledge to build new rail infrastructure in the north and “get serious” about the housing crisis, the mayor of Greater Manchester has said.

Speaking to BBC Breakfast, Andy Burnham said: “We would like to see new rail infrastructure in the north and we’ve made that argument many times.

“Beyond that we need to get serious about the housing crisis and start building council homes across the country. Actually that would be a big investment in the country’s future.”

He also backed the chancellor’s decision to raise the cap on bus fares from £2 to £3 next year: “Buses outside of London and Greater Manchester are in a different position, they are deregulated and it’s quite expensive to subsidise fares in that system.”

Clive Black, the veteran City retail analyst, has criticised Rachel Reeves for what he calls “the most prolonged car crash of a pre-announcement runway”.

He said that the “speculation and leaking to date” has had a “demonstrably damaging impact”, pointing to slipping confidence among businesses and consumers.

Black said: “Whilst one has to hope for the best, the period of the UK government since July 4 has, by common decree of normal folks, been a car crash — a rather depressing one at that given the incapability and incompetence of the Tories.”

He called out the “self-perpetuating civil service” and the public sector, where productivity is “in freefall”. “The rest of the economy is going to have to go some to pick up the slack,” he said.

Britain’s blue-chip shares fell at the opening bell to their lowest in almost three months, with investors taking some of their money off the table.

The FTSE 100, the Premier League of the London stock market, dipped 41.07 points, or 0.5 per cent, at the start of trading on Wednesday to 8,178.54.

Among the biggest fallers were a number of so-called dollar earners — companies which make most of their money overseas — as the pound edged back above $1.30. Shares in Anglo American slipped 3.4 per cent in early dealings, while the pharmaceuticals company GSK and the drinks giant Diageo both fell about 2 per cent.

The index has retreated almost 3 per cent over the past two weeks with investors wary that the chancellor may use the budget to increase capital gains tax on sales of shares.

On the bond markets, the yield on a ten-year UK gilt has crept up to 4.312 per cent, reflecting anxiety about an expected increase in government borrowing. In mid-September, the yield was about 3.75 per cent.

Chris Philp said it was “nonsense” to blame the previous government for the economic outlook.

The shadow Commons leader said that claims by Rachel Reeves that the Conservatives had left a “financial black hole” of at least £22 billion had been “comprehensively debunked”.

Philp told Sky News: “I mean, about half of it relates to inflation-busting pay rises for public sector workers with no performance improvements in return, which this current Labour government chose to give. So they can hardly blame the last Conservative administration for their choices.”

The government will go “over and above” the tax rises outlined during the election in today’s budget, the shadow leader of the Commons said.

Chris Philp said it was “very likely, near certain” that there are going to be “enormous tax increases coming, despite the fact they told the public in the election campaign that wouldn’t happen”.

He told Sky News: “So I think they lied to the British public in order to get elected. And now we’re seeing their true colors. Now we’re seeing what their plans really are.”

It was put to Philp that he could not accuse Labour of lying when the budget had not yet been delivered.

He said: “Well, they’re trailed it extensively, so I think we’ve got a pretty good idea.”

To the annoyance of the Commons speaker, Sir Lindsay Hoyle, much of the content of Reeves’s first budget is already in the public domain.

From tax thresholds to borrowing rules, what do we know so far about what is expected to be in the budget, and what is missing?

• Read in full: Budget 2024 predictions: what could Rachel Reeves announce?

The public will give the government time to get the nation’s finances right but do expect to see results before the next election, a Labour MP has said.

Torsten Bell, the MP for Swansea West who is tipped as a rising star, told Sky News: “People will give the government time. Does that mean they will like every measure we take in terms of how we do that? No, that’s politics, but they will expect to see results come the next election.”

Bell, former head of the Resolution Foundation, an economic think tank, admitted the government has had a tough start since taking office in July. “Has it all been absolutely smooth sailing? No…But what matters is the longer term,” he said.

Rachel Reeves would be an unlikely candidate to join the Communist Party of Great Britain, but she does look up to one of its founding members.

Her aides have proudly circulated an official photograph showing the chancellor sitting in front of an image of Ellen Wilkinson while preparing the budget in No 11.

• Read in full: Rachel Reeves hangs portrait of communist hero in No 11

Labour’s first budget in 15 years, which Rachel Reeves is due to deliver this afternoon, is unlikely to bring much cheer to individuals or businesses.

A hike in employers’ national insurance — which could raise as much as £20 billion — a freeze in income tax thresholds to drag up to a million people into higher bands and an increase in capital gains tax are among the key revenue raising measures the chancellor is expected to outline.

Rachel Reeves will announce a £3 billion boost for defence spending in the budget but will not commit herself to a timeline to hit the target of 2.5 per cent of GDP.

The chancellor will announce additional funding to ease immediate pressures in 2025-26, but there are still significant concerns about cuts to major military projects in the future.

Sir Keir Starmer has previously said that Labour wants to increase defence spending from the present 2.3 per cent to 2.5 per cent of GDP but has not set a date to achieve this.

• Read in full: Rachel Reeves announces defence spending boost

Business leaders have warned they face a “perfect storm” of increased taxes, higher wage bills and the cost of implementing Labour’s overhaul of workers’ rights.

Rachel Reeves, the chancellor, is expected to announce plans to increase employers’ national insurance contributions, which could raise up to £20 billion to fund investment in public services.

She will also confirm a 6.7 per cent rise in the minimum wage from April for more than three million workers, pushing up costs for companies.

• Read in full: Business warns Reeves of ‘perfect storm’