Bond trading giant Pimco have given the UK something of a vote of confidence tonight, after the budget.

Peder Beck-Friis, economist at Pimco, says the UK’s fiscal credibility is intact, and that he continues to find British debt attractive.

Beck-Friis also points out that while UK bond prices fell today, they did slightly better than German government debt, saying:

• There are no reasons for us to question the fiscal credibility in the UK. The government intends to bring the primary deficit into a large surplus, for the first time since the early 2000s. While debt — by the conventional definition — may not fall in coming years, it is unlikely to rise dramatically either.

• It was a volatile day for gilt yields, which ended the day a few basis points higher. Technical factors likely exaggerated the volatility. While gilt yields ended the day higher, they outperformed German Bunds.

• We continue to like gilts. We expect the market to over time shift its attention away from fiscal to the underlying macro drivers, including softening inflation. Tight fiscal policy should weigh on growth and inflation ahead — and over time, we expect the market to price in a lower terminal rate for the Bank of England’s cutting cycle.

Keir Starmer has said boosting growth is a priority for his government, and that reforming planning laws will be a big part of this.

But the Office for Budget Responsibility says in its report it has not been able to adjust its growth forecasts to take account of these policies because there is “insufficient certainty” at the moment as to what exactly they will involve. It says:

The government has proposed significant changes to the National Planning Policy Framework as part of wider reforms to the planning system. These changes are yet to be finalised, as responses to a recent public consultation are being processed by the government. As such, there is insufficient certainty to adjust our current forecast for these measures and we will continue to monitor developments, especially around their implementation given past reform attempts, to judge if and when to incorporate them. These reforms may enable greater delivery of new housing and infrastructure projects, which would boost the associated investment flows, as well as increasing productivity over the longer term.

Rishi Sunak responded to the budget statement in the Commons for the Conservatives, and there is a summary of what he said at 3.43pm. This is what other opposition parties are saying.

From Ed Davey, the Liberal Democrat leader

I worry that the government is still ignoring the elephant in the NHS waiting room: the crisis in social care. I urge the government to end the dither and delay and begin cross-party talks on social care now.

I’m glad that the chancellor has listened to Liberal Democrat calls for more investment in the NHS to start repairing all the damage done to local health services by the Conservatives. We will now hold the government to account on delivering its promises so people can see a GP or dentist when they need to.

From Richard Tice, the Reform UK deputy leader

This budget is an assault on working people, an assault on growth and an assault on hard work.

Thanks to this budget, we are all getting poorer: Per person, per family, per small business, per community.

Labour have failed working people with this budget, they came into office promising change, growth and no tax rises on working people.

What we have instead is the same old Labour: higher taxes, more borrowing and lower growth. This budget hurts hard working British people.

From Carla Denyer, co-leader of the Green party

After the Conservatives left our public services in crisis, we needed a Budget which would start building a fairer society and a greener economy. There is a way to help fund this – by raising taxes on the very wealthiest in our society.

But the chancellor has ducked it. Instead, we have a set of half measures, some of them positive, but a Budget which lacks a vision for our future and that does not deliver the change that people voted for in July.

This is a Budget that gives with one hand and takes away with the other. While there is modest investment in the NHS, the withdrawal of winter fuel payments for millions of pensioners will leave them colder and sicker. The chancellor is spending to create jobs but is also making it more costly to employ people by raising employers’ NICs [national insurance contributions], and more expensive for people to travel to work by raising bus fares. There’s funding to fix crumbling schools, but they will be filled with students going hungry because she won’t lift the two-child benefit cap.

Public services that have been starved of funding for fourteen years need more than a few crumbs. The money to fund our public services is available if the chancellor had the courage to tax the very wealthiest. Labour promised us no more austerity, but it won’t feel like that.

From Stephen Flynn, the SNP leader at Westminster

It’s clear the SNP is winning the argument on the need for more investment in our NHS and public services. I welcome those areas where the chancellor has listened, including the decision to change the Labour government’s conservative fiscal rules to allow for more investment.

However, while additional funding for public services is welcome, the Labour government’s budget also imposes more than £40bbn of cuts and tax hikes that will hit millions of Scots in the pocket - and it fails to deliver the transformative change people in Scotland were promised.

From Liz Saville Roberts, the Plaid Cymru leader at Westminster

Tax changes will hit businesses with lower-paid workers hardest, impacting families across Wales. And new rules on farm property could threaten the family-run farms that are the heart of Welsh agriculture.

It was good to see Westminster finally addressing the damage left by the coal industry - an issue Plaid Cymru has raised for years. But without real investment to create local jobs, these communities will keep paying the price for an industry that once fueled UK wealth.

Andy Haldane, the always-quotable former chief economist of the Bank of England, has billed today’s statement as a Keynesian budget.

Speaking on LBC’s Tonight with Andrew Marr, Haldane pointed out that Reeves has anounced extra borrowing, extra spending, and extra taxation – but warns that the payoff in growth terms “remains a bit uncertain right now”.

Haldane also voiced hopes that the bond market won’t panic about the plans, saying:

‘My guess would be there’s enough assurance around Rachel’s new fiscal rules… the current one, the one that balances the books on current spending three years ahead, would be seen as a tighter rule than the earlier one.

So, my guess would be that bond markets won’t fall out of bed. And of course, what really matters to bond markets is a good story about growth.

Government ministers in Scotland, Wales and Northern Ireland have welcomed a “huge” budget deal after the chancellor said the devolved nations will get record levels of funding.

Rachel Reeves, the chancellor, said the three governments will benefit from the largest real terms funding since the advent of devolution, receiving a total of £6.6bn from the budget after years of spending squeezes under the Conservatives.

She unveiled a series of significant investment pledges for all three nations, including new green hydrogen projects at Cromarty in the Highlands and Milford Haven in south west Wales, a £25m city growth deal for Argyll and Bute in Scotland, £25m to maintain disused coal tips in Wales, as well as £125m to launch the new GB Energy headquarters in Scotland.

Ian Murray, the UK’s secretary of state for Scotland, said the total settlement for Scotland of £3.4bn would have a “huge impact” on the devolved government’s spending, with Treasury funding rising to a record £47.7bn next year.

Darren Jones, the chief secretary to the Treasury, told reporters that meant public spending in Scotland would soon be 20% higher per person than the UK average.

The chancellor said Wales would receive an additional £1.7bn and Northern Ireland £1.5bn for both day-to-day funding and investment in infrastructure.

The Treasury confirmed after her statement those figures involved extra funding across this year and next, so were the equivalent of two years additional spending, rather than a jump in funding from this year to next.

Its data tables showed the actual rate of increase in real terms over those two years was 2.3% for Scotland; 1.3% for Wales and 1.3% for Northern Ireland. The capital funding for Northern Ireland actually fell by 0.3% between 2023/24 and 2025/26.

• The headline of this post was amended on 1 November 2024. An earlier version referred to “devolved governments” welcoming the budget; while ministers there had made positive statements, their comments were not included in the post.

Farmers are angry about the announcement in the budget that farms worth more than £1m will no longer qualify for exemption from inheritance tax. After the first £1m, the agricultural property relief available will be 50%, not 100% as it was before.

The National Farmers’ Union believes that farmers will not be able to pass their farms on to their children because inheritance tax bills will be too high.

Jeremy Clarkson, Britain’s most famous celebrity farmer, has posted this on social media.

Rupert Harrison, who was chief adviser to George Osborne when Osborne’s “omnishambles'” 2012 budget was derailed by the pasty tax, says he thinks this is the budget decision most likely to unravel.

But, in its document explaining the move, the Treasury claims that only around 500 families a year are likely to be affected. It says that, by the end of the decade, cutting the agricultural property relief, and reducing business property relief from inheritance tax for shares not listed on recognised stock exchanges, will save around £500m per year. It says:

It is not fair or sustainable for a very small number of claimants each year to claim such a significant amount of relief. This also contributes to the very largest estates paying lower average effective inheritance tax rates than smaller estates.

The Resolution Foundation warns that Rachel Reeves has only taken the “first step” towards tackling the UK’s economic challenges.

Mike Brewer, interim chief executive at the Resolution Foundation, says:

“The first Labour Budget in 15 years was an historic moment, and huge in both tax and spend terms. Rachel Reeves announced £326bn of extra funding for public services and investment across the parliament, funded by the biggest tax rising Budget on record along with extra borrowing.

“The Chancellor has done a reasonable job of ensuring a balanced package of tax reforms. Essentially, she has more than reversed the last Government’s pre-election National Insurance cuts with post-election National Insurance rises. But there are winners and losers in this convoluted policy reversal, with self-employed workers and small businesses being the big winners and firms employing lots of low or very high earners worse affected.

“The Chancellor has delivered a Budget that engages with the seriousness of Britain’s economic challenges. But it is only the first step of what will be needed to secure strong public services, end stagnation, and lift living standards for all.

In their quickfire analysis of the budget, the Resolution Foundation also point out that:

• Rachel Reeves has “largely avoided” the real per-person cuts to unprotected departments implied by Jeremy Hunt’s plans. The £44.1bn boost (in 2029-30) to day-to-day public services spending (RDEL) announced today is the biggest real-terms increase since the 2000 Spending Review.. they say.

• The UK’s projected tax take by the end of the Parliament will be higher than Spain’s today, but lower than Germany and the Netherlands.

• The package of tax rises included “welcome” revenue raising reforms to Inheritance Tax and Capital Gains Tax (CGT), together raising £4.8bn a year by 2029-30, and a major £25.7bn rise in employer National Insurance (NI) contributions, which broadly reverses the employee NI cuts announced by Jeremy Hunt in the run-up to the last election.

Brewer also echoes the concerns voiced by welfare charities today (see previous post), saying:

“And while the Chancellor has confronted Britain’s austerity challenge, she has kicked the can down the road on Britain’s equally pressing poverty challenge until next Spring at the earliest.

A failure to reverse damaging welfare cuts could see over 200,000 more children affected by the two-child limit.”

Campaigners and charities have expressed concern about the measures on welfare announced in the budget.

The Joseph Rowntree Foundation said that, although there were some good announcements in Rachel Reeves’s speech, there was nothing on social security that would “seriously bring down hardship”. Paul Kissack, the JRF chief executive, said in a statement:

It’s deeply worrying that we haven’t seen changes to social security that will seriously bring down hardship. In particular private renters will feel let down by the choice to keep local housing allowance frozen meaning that it will become further out of step with local rent levels, which have soared in recent years.

People receiving sickness benefits also face a fearful future at a time when almost two thirds of those experiencing destitution have a long term health condition. The government has failed to explain how they will save £3bn from the benefits bill and will offer no certainty and more anxiety rather than the respect they deserve.

United Response, a learning disability charity, criticised Reeves for talking about the need for a crackdown on benefit fraud. Sapphire Beamish, its head of communications, said:

It is a poor decision to continue the rhetoric around tightening work capability assessments alongside a ‘crackdown on fraud’.

The negative framing on welfare continues to inflict stigma and increase the worry for people with a learning disability who are left feeling let down that the focus is on saving money over supporting disabled people.

James Taylor, executive director of strategy at disability equality charity Scope, welcomed investment in localised employment support for disabled people, but added:

Bringing in changes based on savings, not on supporting disabled people, will be disastrous.

Ramping up restrictions won’t help support more disabled people into work, it will only make their lives harder.

Rather damningly for the government, the OBR reckons the budget will not boost business investment.

The watchdog has concluded that the net impact of policies at this budget lowers business investment – with higher taxes hitting profits, and the government ‘crowding out’ private sector opportunities.

As a result, business investment is expected to fall as a share of GDP as profit margins are squeezed.

The OBR explains:

Higher government investment increases incentives for businesses to invest, but in the near term this is more than offset by the crowding out effect of the fiscal loosening in this budget.

Paul Johnson, director of the Institute for Fiscal Studies, has released his initial response to Rachel Reeves’s budget.

Johnson says that in “broad brush” terms, this is the budget we’d expected – with big tax rises, more cash for public services, more borrowing and more investment.

He explains:

Tax is now on a path to 38.2% of GDP, its highest level ever in the UK, as the Chancellor seeks to shore up public services. But the Chancellor wanted to go further on spending, and so she’s also topping up public service budgets through borrowing in the next couple of years.

We’re now set to borrow £28 billion more in 2025-26 than previously planned, and to spend £19 billion more on public investment: around a third of the extra borrowing is going towards higher day-to-day spending.

But beyond that, he says the chancellor is taking two big judgements, or “one could say gambles”.

Johnson says gamble number one is that a big cash injection for public services over the next two years will be enough to turn performance around, and that many of the temporary spending pressures won’t persist.

If she’s wrong about that, and spending pressures don’t dissipate after two years, then to avoid cutting unprotected areas she may well need to come back with another round of tax rises in a couple of years’ time – unless she gets lucky on growth.

And the second gamble, is that the extra borrowing will be worthwhile.

Johnson (who will leave the IFS next summer to become Provost of Queen’s College, Oxford), says:

Under pre-election plans we were set to borrow an average of £59 billion per year over the next four years. We now expect to borrow an average of £85 billion.

The hope is that the benefits – from more funding for public services in the next couple of years, and from more public investment throughout the parliament – will more than offset the costs. These costs include higher debt servicing costs but also, according to the OBR, higher inflation and higher interest rates than we’d otherwise have seen. A lot hinges on how well the government spends the money. The additional investment is extremely front-loaded, which doesn’t fill me with confidence on how efficiently it will be spent - if indeed it is spent in that timescale.

Here are more lines from Rishi Sunak’s response to the budget.

• Sunak, the former PM and outgoing Tory leader, said the budget was full of broken Labour promises.

On the day that he took office, the prime minister said that he wanted to restore trust to British politics with actions, not words.

Well today, his actions speak for themselves with a budget that contains broken promise after broken promise and reveals the simple truth that the prime minister and the chancellor have not been straight with the British people.

Time and again, time and again, we Conservatives warned Labour would tax, borrow and spend far beyond what they were telling the country. And time and again, they denied they had such plans.

But today, the truth has come out, proof that they planned to do this all along, because today’s budget sees the fiscal rules fiddled, borrowing increased by billions of pounds, inflation-busting handouts for the trade unions.

In particular, he said Reeves had broken a promise not to change the fiscal rules.

She specifically told the British people she wouldn’t change the debt target because, and I quote she said, ‘I’m not going to fiddle the figures to get better results’.

But that is exactly what she has done. She has gone back on her word and fiddled the figures so that she can borrow billions more. Broken promise after broken promise, and working people will pay the price.

• He rejected claims that the Conservatives left the economy in a poor state.

The chancellor and prime minister have tried to say that they had no choice but be in no doubt, their misleading claims about the state of the economy are nothing but a cynical political device.

Today’s situation is a world away from the genuinely bleak legacy that we Conservatives inherited from the last Labour government.

Borrowing – the Chancellor forgot to point out – borrowing: £1 in every four that they spent. Debt rising every year. And unemployment at 8%.

• He said the Office for Budget Responsibility was not backing claims his party left a £22bn black hole in the budget. (See 3.13pm.)

The OBR has in fact declined to back up her claims of a fictional £22bn black hole. It actually appears nowhere in their report. It is deeply, deeply disappointing that she has sought to politicise the independent OBR that should be above party politics.

• He accused Reeves of letting borrowing rip.

Today the Chancellor has launched an enormous borrowing spree, saddling our children and grandchildren with billions upon billions of pounds more debt, pushing up interest rates, leaving our economy more exposed to future shocks and leading the OBR today to now forecast higher inflation in every year of the forecast.

Her decision to let borrowing rip make a total nonsense of her claims on the state of the public finances, because if they were truly in such a dire strait, as she has said, what we should have seen today was a significant reduction in borrowing to repair them, not the splurge that she has just unleashed.

• He accused Reeves of delivering “delivering a tidal wave of anti-business regulations” and claimed Labour was led led by people “who have no experience of business”.

Labour has been insisting that growth is the number one priority of the government – so the new forecasts from the Office for Budget Responsibility are a blow.

The OBR is predicting a pick-up in growth this year, and in 2025… but that’s followed by a slowdown from 2026.

Growth in 2026, 2027 and 2028 is forecast to be lower than expected in March, as this chart shows:

(although Rachel Reeves did insist that any comparison between today’s forecast and the OBR’s March forecast is false, due to the previous government not being straight with the watchdog)

The OBR says:

Having stagnated last year, the economy is expected to grow by just over 1 per cent this year, rising to 2 per cent in 2025, before falling to around 1½ per cent, slightly below its estimated potential growth rate of 1⅔ per cent, over the remainder of the forecast.

Budget policies temporarily boost output in the near term, but leave GDP largely unchanged in five years.

The watchdog adds that tax rises in the budget weigh on real incomes, meaning that private consumption falls as a share of GDP.

A reminder, here are the new forecasts:

• GDP in 2024: +1.1%, up from 0.8% growth forecast at the March budget

• GDP in 2025: +2%, up from 1.9% growth forecast at the March budget

• GDP in 2026: +1.8%, down from 2.0% growth forecast at the March budget

• GDP in 2027: +1.5%, down from 1.8% growth forecast at the March budget

• GDP in 2028: +1.5% down from 1.7% growth forecast at the March budget

• GDP in 2029: +1.6%, a new forecast

The Office for Budget Responsibility has backed up Rachel Reeves’s claim that the last government was not open about the spending pressure in its 2024-25 budget – but it has not specifically endorsed her claim that this amounted to a £22bn black hole.

Reeves made the claim in July, when she published a report saying the Tories were committed to spending £21.9bn this financial year which they did not have funding for. At the time the Office for Budget Responsibility launched an inquiry into whether it was misled by the Treasury about spending pressures when it published its report on the March budget.

Today the OBR has published the results of that inquiry. It concludes:

Up until the March 2024 forecast, the processes for forecasting levels of RDEL [resource deparmental expenditure limits] spending during spending review periods had been largely successful. This was not the case in the March 2024 EFO [economic and fiscal outlook – the OBR report]. The Treasury did not share information with the OBR about the large pressures on RDEL, about the unusual extent of commitments against the reserve, or about any plans to manage these pressures down at the challenge panel. Further information that came to light after this meeting, but before the forecast was published, about pressures on baseline RDEL budgets and the implications of policy decisions announced at the budget, was also not sufficiently shared.

The view of the OBR is that, had this information been made available, a materially different judgement about RDEL spending in 2024-25 would have been reached. The underspend assumption of £2.9 billion would very likely have been dropped, and so there would have been a materially higher DEL forecast for 2024-25 in the March 2024 EFO.

Richard Hughes, chair of the OBR, has summarised the findings in a letter to the Commons Treasury committee. The letter includes a Q&A, which implies that if there was a “black hole”, it was only about half the size Reeves implied.

1. Does your review substantiate the chancellor’s £22 billion claim?

The review found that in the run-up to the March 2024 Budget, the Treasury had information about £9.5 billion of net pressures on departments’ budgets in 2024-25 which it did not share with us.

Had this information been made available, we would have reached a materially different judgement about resource DEL spending in 2024-25.

Chris Philp, a Tory former Treasury minister who is now shadow leader of the Commons, suggests his party has been at least in part vindicated.

If I’m reading it correctly, the OBR note today says the Treasury only submitted a claim that the “black hole” was £9.5b (not £22b) and even that can’t be verified.

Back in the bond market, UK borrowing costs are now rising as City investors digest the budget … and the Office for Budget Responsibility’s verdict.

The gilt market rally before, and during, the speech has now unravelled.

This means that the yield (or interest rate) on 10-year UK gilts is now up 10 basis points at 4.4%, having dropped from 4.3% last night to 4.2% earlier today.

That’s the highest interest rate for UK government borrowing since May.

Investors may be concerned that the government is only left with £15.7bn of fiscal headroom in 2029-30 under the new PSNFL debt measure.

They’re probably also unimpressed that growth is forecast to be lower than previously expected from 2026, despite the large increase in spending and borrowing in the budget.

Shamil Gohil, fixed income portfolio manager at Fidelity International, says:

“The gilt market has given back all of its pre-budget morning gains post this afternoon’s speech.

While the Chancellor seems to have struck the right balance between higher tax hikes, higher spending and borrowing to invest in the economy, there are question marks around the fiscal headroom, which looks quite tight, both on the net financial debt rule and current budget surplus, even after easing the rules - overspend is certainly higher than the market expected.

It helps that she has the backing of the Office of Budget Responsibility (OBR) on growth forecasts, however, it remains to be seen if the Labour government can credibly deliver on their plans, and execution risks remain high

Rachel Reeves’s decision to introduce VAT on private school fees from January is expected to bring in £1.6bn a year from next year, rising to £1.7bn in 2029-30.

The Office for Budget Responsibility also estimates that it will cut the number of pupils in independent schools by 35,000.

The OBR reckons the effective VAT rate applied will be 15.4%, because schools will be able to recover the VAT on some of their input costs (which could be a windfall for some schools who have invested in buildings and land acquisition in recent years).

The OR estimates that around two-thirds of the cost is passed on through higher fees, just less than a quarter is covered through a reduced service provision, and the remainder is absorbed through cost efficiencies and from profits.

It adds that the VAT change is more likely to deter prospective future new students from entering private schools, rather than driving existing students away, as parents will be more reluctant to disrupt their education.

It adds:

Overall, the costing estimates that as a result of the policy in the steady state there will be around 35,000 (6 per cent) fewer private school pupils, reflecting both leavers and, primarily, fewer new joiners.

The cost of 35,000 additional state sector pupils would be around £300m, based on a £7,690 per pupil cost in England, the OBR adds.

The government has said that its budget decisions were designed to protect people’s payslips. (See 9.31am.) But the Office for Budget Responsibility says the increaser in employers’ national insurance contributions (NICs) will have a negative impact on pay. It says:

We expect real earnings to grow 2.4 per cent this year and 1.2 per cent in 2025, 1.1 and 0.7 percentage points higher than in March, respectively. Real earnings then stall in 2026 and 2027 as firms rebuild margins and pass on the cost of higher employer NICs. This means we do not expect real wages to resume growing in line with productivity (around 1 per cent a year) until beyond the forecast horizon.

Elsewhere in the report the OBR says it expects firms to pass on about 60% of the extra costs to employees.

But the OBR also says that, although the NICs rise could also lead to firms investing less, the positive impact of more money for public investment will compensate for this.

The employer NICs rise is estimated to reduce labour supply by 50,000 average-hours equivalents, while the net fiscal loosening would crowd out some private investment in an economy with little spare capacity. At the same time, the increase in public investment boosts potential output by raising the public capital stock and incentivising some private investment. Taken together, Budget policies leave the level of output broadly unchanged at the forecast horizon.

Rail passengers will face an inflation-beating rise in faces next year, the Treasury Red Book shows.

It says that the annual regulated rail fares cap will rise by 4.6% on 2 March 2025, one percentage point above the RPI inflation rate of 3.6% in July (the usual benchmark).

This will be the lowest absolute increase in three years, the Treasury says. This year they rose by 4.9%, because the government chose to cap the rise below the RPI rate.

Rail passengers may perhaps wonder why they are getting hit, while drivers will benefit from another freeze to fuel duty…. (see 1.05pm).

The Office for Budget Responsibility’s verdict on the budget is out.

And it declares that Rachel Reeves has delivered “a large increases in spending, tax, and borrowing” today.

The ONR says:

The Budget increases spending by £70 billion annually, with two-thirds on current and one-third on capital spending.

Half of this increase is funded though the tax increases we’re just heard about (mainly higher employer national insurance contributions); overall, tax brings in an extra £36bn per year – and pushes the tax take to a record 38% of GDP by 2029-30.

The other half of the spending increase comes from higher borrowing – an extra £32bn per year.

And while that temporarily boosts GDP growth to 2% in 2026, it leaves output “unchanged in the medium term”, the fiscal watchdog says.

The OBR adds:

New fiscal rules, to balance the current budget and get net financial liabilities falling relative to GDP in five years, are met by small margins of £10 and 16 billion respectively.

Rachel Reeves appears to have achieved one of the key goals of this budget – not to give the markets a pre-Halloween shock.

UK bond prices have strengthened a little during the speech, adding to their gains this morning.

This has pushed the yield (or interest rate) on 10-year bonds down to 4.2% as the chancellor retakes takes her seat, down from 4.3% (a post-election high) last night.

Longer-dated debt is stronger too – with the 30-year gilt yield also down by over 9 basis points, to 4.69%.

Bond market Mohamed El-Erian, President of Queens’ College, Cambridge, and chief economic adviser at Allianz, says the bond market is responding favourably to the budget:

It’s quite a contrast on the panic we saw two years ago during the mini-budget of September 2022, when unfunded tax cuts spooked investors.

Today’s reaction suggests the government has done a decent job of preparing the markets, points out Archie Hall of The Economist

Reeves ends with an announcement about investment in the NHS.

She says day-to-day health spending will rise by £22.6bn, and capital spending by £3.1bn, this year and next year.

She goes on:

So today, because of the difficult decisions that I have taken on tax, welfare and spending, I can announce that I am providing a £22.6bn pound increase in the day to day health budget.

Let me set out what this funding is delivering. Many NHS buildings have been left in a state of disrepair. So we will provide £1bn pounds of health capital investment next year to address the backlog of repairs and upgrades across our NHS to increase capacity for tens of thousands more procedures.

Next, we will provide a further £1.5bn pounds for new beds in hospitals across our country, new capacity for over a million additional diagnostic tests and new surgical hubs and diagnostic centres so that people waiting for their treatment can get it as quickly as possible.

The health secretary will be setting out further details of his review into the new hospital program in the coming weeks and publishing in the new year. But I can tell the house today that work will continue at pace to deliver those seven hospitals affected by the Raac crisis …

And finally, because of this record injection of funding, because of the thousands of additional beds that we have secured, and because of the reforms that we are delivering in our NHS, we can now begin to bring waiting lists down more quickly and move towards our target for waiting times to be no longer than 18 weeks by delivering on our manifesto commitment for 40,000 extra hospital appointments a week.

Reeves announces an extra £6.7bn for capital investment by the Department for Education. That is a 19% increase in real terms on this year, she says.

And there will also be £2.1bn for school maintenance – £300m more than this year.

She says this money will help address the problems caused by Raac (crumbly concrete).

The news that the UK’s fiscal rules will now target Public Sector Net Financial Liabilities, PSNFL, (known as “persnuffle” in economic circles), confirms the Guardian’s report from last week.

It means the UK will now account financial assets, including student loans and company shares, alongside government debts.

Here’s Ben Zaranko of the IFS:

It should free up potentially £50bn of extra borrowing within the fiscal rules, as this chart shows:

Reeves says she will be left with £15.7bn of headroom at the end of the OBR’s forecast period, under PSNFL.

That’s “much lower than expected”, reports Paul Johnson of the Institute for Fiscal Studies.

Reeves says, under the Tories, public investment was set to fall from 2.5% of GDP to 1.7% of GDP.

She says her new debt rule – called the investment rule, because the definition of debt is changing to allow more investment – will address this.

She confirms that the government will move to public sector net financial liabilities (PSNFL) as the debt measure. This is a metric that has been measured since 2016, she says.

She says four “guardrails” will be in place.

First, our portfolio of new financial investments will be delivered by expert bodies like the National Wealth Fund, which must, by default, earn a rate of return at least as large as that on gilts.

Second, we will strengthen the role of institutions to improve infrastructure delivery.

Third, we will improve certainty setting capital budgets for five years and extending them at every spending review every two years.

Finally, we will ensure that there is greater transparency for capital spending with robust annual reporting of financial investments based on accounts audited by the National Audit Office and made available to the office for Budget Responsibility at every forecast.

Taken together with our stability rule, these fiscal rules will ensure that our public finances are on a firm footing, while enabling us to invest prudently.

Reeves says she is tripling investment in breakfast clubs.

And she announces a £1bn uplift in special educational needs funding – an increase of 6% year on year, she says.

There was speculation that Reeves would extend the freeze on income tax and national insurance thresholds put in place by the last government. But Reeves has decided not to, she says.

The previous government froze income tax and National Insurance thresholds in 2021 and then they did so again, after the mini budget, extending their threshold freeze for a further two years …

Having considered this issue closely, I have come to the conclusion that extending the threshold freeze would hurt working people would take more money out of their pay slips. I am keeping every single promise on tax that I made in our manifesto. There will be no extension of the freeze in income tax and national insurance thresholds beyond the decisions by the previous government.

From 2028-29, personal tax thresholds will be uprated in line with inflation once again.

Reeves turns to air passenger duty.

There will be a small adjustment, worth no more than £2 for economy, short-haul flights.

But there will be a different approach for private jets. Their air passenger duty will rise by 50%, she says.

Making a joke about Rishi Sunak, she says this would be the equivalent of £450 per passenger for a flight to California.

Reeves is now on inheritance tax. She says she is taking “a balanced approach”.

First, the previous government froze inheritance tax thresholds until 2028. I will extend that freeze for a further two years until 2030 that means the first £325,000 of any estate can be inherited tax free, rising to £500,000 pounds if the estate includes a residence passed to direct descendants and £1m when a tax free allowance is passed to a surviving spouse or civil partner.

Second, we will close the loophole created by the previous government made even bigger when the lifetime allowance was abolished by bringing inherited pensions into inheritance tax from April 2027.

Finally, we will reform agricultural property relief and business property relief from April 2026. The first £1m of combined business and agricultural assets will continue to attract no inheritance tax at all. But for assets, but for assets over £1m inheritance tax will apply with a 50% relief at an effective rate of 20%,

This will ensure that we continue to protect small family farms with three-quarters of claims unaffected by these changes.

I can also announce that we will apply a 50% relief in all circumstances on inheritance tax for shares on the Alternative Investment Market (AIM), and other similar markets, setting the effective rate of tax at 20%.

Reeves says these changes will raise over £2bn by the end of the forecast period.

AIM companies, and investors, had worried that their IHT tax relief would be removed today – those fears have pushed the AIM market down since the general election was called in May.

Reeves turns to capital gains tax.

The lower rate will rise from 10% to 18%, and the higher rate will go up from 20% to 24%, she says.

She says this will still be the lowest rate for any European G7 country.

Reeves says she is not increasing income tax, employees’ national insurance and VAT.

But she will increase employers’ national insurance, she says. It will go up by 1.2 percentage points, to 15%, from April next year, she says.

And she says she is reducing the threshold at which it gets paid. This will come down from £9,100 per year to £5,000.

Reeves says this will raise £25bn a year by the end of the forecast period.

This will raise £25bn per year by the end of the forecast period.

Reeves says the government will find savings by reforms to the health and disability benefits system.

And there will be “a crackdown on fraud in our welfare system, often the work of criminal gangs”, using “innovative new methods to prevent illegal activity and provide new legal powers to crack down on fraudsters, including direct access to bank accounts to recover debt”.

She says this should save £4.3bn by the end of the forecast period.

There are also measures to get more people into work, she says.

Reeves says this budget will raise taxes by £40bn. Watch her announcement below:

Reeves says people can see the problems facing public services. She says:

The country has inherited not just broken public finances, but broken public services too.

The British people can see and they can feel that in their everyday lives: NHS waiting lists at record levels, children in portacabins as school roofs crumble, trains that do not arrive, rivers filled with polluted waste, prisons overflowing, crimes which are not investigated and criminals who are not punished.

She says the last government did not provide funds for services, and for things like compensation scheme (for Post Office operators, and for victims of the blood scandal).

She says Rishi Sunak apologised to the victims of the blood scandal. But he did not budget for compensation, she says.

She says she is setting aside £11.8bn to compensate the blood scandal victims, and £1.8bn for the victims of the Post Office scandal.

Reeves says the Tories failed the country.

Austerity broke the public services, their Brexit deal harmed the economy, and their policies led to a fall in living standards.

Reeves says today the government is publishing an analysis of the £22bn black hole in this year’s spending she says Labour inherited. It includes hundreds of unfunded measures, she says.

And she says the OBR is publishing its own report (as reported on Sunday) saying the last government did not disclose all the spending pressure it faced at the last budget. If the OBR had known about these, its assessments would have been “materially different”, she says.

She says she will implement all the recommendations from the OBR’s review.

Here’s our colleague Jessica Elgot’s take:

Reeves says change must be felt. There must be more money in people’s pockets. (See 8.34am.)

The only way to deliver growth is to “invest, invest, invest,” she says.

She says Labour has had to renew Britain before, and it will again.

Rachel Reeves gets long and loud cheers as she starts.

Britain voted for change, she says. The government has a mandate to restore stability and start a decade of renewal, she says.

Keir Starmer starts by thanking Rishi Sunak for his service. They have had disagreements, and argued at some length. But he wants to thank him for his commitment to public service, his hard work and his decency, he says.

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.

If you want to contact me, please post a message below the line (BTL) or message me on social media. I can’t read all the messages BTL, but if you put “Andrew” in a message aimed at me, I am more likely to see it because I search for posts containing that word.

If you want to flag something up urgently, it is best to use social media. I’m still using X and I’ll see something addressed to @AndrewSparrow very quickly. I’m also trying Bluesky (@andrewsparrowgdn) and Threads (@andrewsparrowtheguardian).

I find it very helpful when readers point out mistakes, even minor typos (no error is too small to correct). And I find your questions very interesting too. I can’t promise to reply to them all, but I will try to reply to as many as I can, either BTL or sometimes in the blog.