Good morning. It was Labour’s first budget in 14 years; it was the first budget ever to be delivered by a female chancellor; and, as a share of GDP, it takes taxes to their highest level since comparable records began. As heavily trailed as Rachel Reeves’s appearance at the dispatch box yesterday was, it was still a monumental political moment, and one that is likely to set the course of the country for many years to come.
After weeks of paving the way for a rough budget by blaming her Conservative predecessors for the economic legacy she inherited, Reeves largely struck a more optimistic tone in her delivery. And, by some measures, she has successfully charted a course that will increase growth and balance the books without increasing the burden on those endlessly-discussed “working people” as heavily as had been expected.
But increases to the cost of borrowing and some tepid forecasts from the independent Office for Budget Responsibility (OBR) suggest there are still fierce economic headwinds. And the hostile reaction from the rightwing papers this morning is only a preview of how difficult the political climate will continue to be.
Today’s newsletter explains the key policies, the impact and the reaction. Here are the headlines.
Five big stories
UK news | Keir Starmer has warned Tory leadership contenders Robert Jenrick and Kemi Badenoch against undermining the police investigation into the Southport attack. Jenrick said information about the attack was “concealed”, while Badenoch said that the government and police “have questions to answer”.
Spain | At least 95 people were dead after torrential rains in southern and eastern Spain on Tuesday brought flash floods that raged through towns and cut off roads and railway lines.
UK news | The Blur drummer, Dave Rowntree, has attacked the UK law on assisted dying as “psychopathic” as he spoke out for the first time about the choice of his terminally ill ex-wife to take her own life at Dignitas in Switzerland.
India | The Canadian government has publicly alleged that India’s home affairs minister, Amit Shah – closest political ally of the prime minister, Narendra Modi – was behind a recent series of plots to murder and intimidate Sikh separatists on Canadian soil.
US election | Donald Trump dressed as a sanitation worker and appeared in the cab of a garbage truck in Wisconsin as he sought to capitalise on a gaffe by Joe Biden. Biden appeared to call Trump supporters “garbage” but later said he was referring to a comedian’s “hateful rhetoric” about Puerto Rico at a Trump rally.
In depth: ‘We must restore economic stability’
At 77 minutes, Reeves’s budget was longer than any in the last 14 years, and longer than the last one delivered by a Labour chancellor, Alistair Darling. Her top line was this: “The only way to improve living standards, and the only way to drive economic growth is to invest, invest, invest … we must restore economic stability and turn the page on the last 14 years.”
Here’s how she tried to do it, and how it was received.
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The detail: big tickets, little rabbits
Among the well-trailed major changes that formed the brunt of the budget, there were a couple of smaller surprises as well – maybe not quite rabbits, but at least a couple of voles with which to amaze voters. Jasper Jolly and Peter Walker set out the key points here.
Some of the big-ticket items that we knew were coming: an increase in employers’ national insurance contributions, worth £25bn a year by the end of this parliament; an increase in the higher rate of capital gains tax from 20% to 24%; VAT on private school fees; a new rule allowing borrowing of up to £50bn over the next five years to invest in major infrastructure; a 6.7% rise in the minimum wage; and a £22.6bn increase to the NHS budget.
The biggest surprise was that Reeves decided not to extend the Conservatives’ freeze on tax bands, which has meant that many people pay a higher rate of tax on some of what they earn if their salaries merely rise in line with inflation. She did, however, maintain the freeze on fuel duty – when giant cockroaches rule the earth in the year 6000, they will still be paying 52.95p a litre – and reduced duty on draught alcoholic drinks, meaning, as she said, “a penny off a pint in the pub”.
Taken together, the OBR says, the budget increases spending by £70bn a year. Two-thirds of that will go on current spending, and one-third on capital spending. Ben Zaranko of the Institute for Fiscal Studies noted that the real-terms growth in public service funding of 1.5% a year “isn’t particularly generous”, and the plans amounted to “a short-term cash injection, with a promise of belt-tightening in the future”.
Meanwhile, the OBR says tax receipts will increase by £36.2bn a year from next year; while that is a record as a share of GDP, 38%, John Burn-Murdoch of the FT points out that the same thing is true almost everywhere. Borrowing will be up by £32.3bn. Public investment will average 2.6% of GDP over the course of the parliament, against 1.7% under the plans set out by Jeremy Hunt in the spring.
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The impact: a growth spurt that may tail off
The Guardian has a budget calculator that will help you figure out if you will be better or worse off as a result of the changes announced by Reeves. And here are some case studies that illustrate how they will affect different groups. You can see a reasonably positive response from voters in Reeves’ constituency here, and a more negative view from employers here.
The Treasury’s impact assessment (pdf) suggests that the measures announced by Reeves will have the greatest direct benefit for the poorest, and cost the richest the most: when benefits from public services are taken into account, the bottom decile of income distribution will see a 3.5% improvement against their net income, while the top decile will see a 0.5% reduction.
The OBR forecasts slightly stronger growth over the next couple of years, largely because the budget is expected to stimulate demand – but it says that growth will then tail off over the last three years of the current parliament, and actually slow against previous expectations. The size of the economy would be “largely unchanged” in five years’ time, it adds. Such forecasts are usually a bit off – but if this one proves broadly correct, it would leave Labour a long way off its promise of “the highest sustained growth in the G7”.
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The Tories’ reaction: ‘Broken promise after broken promise’
In his last major appearance at the dispatch box, Rishi Sunak had two main messages: Labour has broken its pledge not to raise taxes on working people, and the fallout is Reeves and Starmer’s responsibility, not his and Hunt’s. He said the budget contained “broken promise after broken promise”, and amounted to a betrayal of Starmer’s pledge to restore trust to British politics.
He also hotly contested Reeves’s characterisation of a dire economic inheritance, arguing that the chancellor had inherited lower borrowing than other major economies and the second-lowest debt in the G7. “Labour’s claims about their inheritance are purely ludicrous,” he said. “These are her choices, so stop blaming everyone else and take responsibility for them.”
“Broken promises” appeared to be the take that many other Tory MPs wanted to hammer home on social media. Meanwhile, Conservative leadership candidate Robert Jenrick called it “the biggest heist in modern history”, and his rival Kemi Badenoch said it was a plan that amounted to “higher taxes, more borrowing, and lower growth”.
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The markets’ reaction: cost of government borrowing increases
When Reeves started to speak, the cost of government borrowing on international markets fell a little. But as she set out her plans, the 10-year gilt yield – a measure of how much the exchequer pays on its debt – climbed to 4.39%, the highest it has been in five months.
That impact was to be expected, and can be understood as the natural price of seeking to borrow more to fund investment. And it was somewhat blunted by the government’s efforts to prepare the ground for its plans by pre-briefing them so extensively.
In the Times (£), Panmure Liberium chief economist Simon French concluded that ultimately, the “initial reaction of financial markets will trigger huge sighs of relief in the Treasury and at the Bank of England”. The Guardian’s Larry Elliott characterised the change to borrowing costs as “modest” and said that they did not amount to a major threat.
The impact is not on the scale seen after Liz Truss’s 2022 mini-budget, a cost memorably described as the “moron premium”, perhaps because investors are broadly convinced that Reeves will stick to her fiscal rules and the UK will be good for the money. But it does mean that the pressure on those investments to deliver long-term economic benefits is even higher.
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The left’s reaction: some progress, but disappointment
While there was a broad welcome on the left for the chancellor’s decision to borrow more to fund investment, many criticised the government for not going far enough on this or a range of other changes.
In this panel of reaction, the political economist Sahil Dutta argues that “despite progress on public investment, Labour’s budget still reflects a failed status quo”. He says that Reeves’s new fiscal rules will funnel money towards the developers who will get the infrastructure contracts, while the workers who are critical to sectors like social care and the NHS are undervalued.
Hannah Peaker, director of policy at the New Economics Foundation, similarly applauded the change on borrowing but said Reeves had not gone far enough. “In one sense, I welcome her courage in challenging and changing the fiscal rules that have been holding us back,” she told the BBC. “On the other hand, I wish she’d had more courage in challenging the very wealthiest in our society to pay their fair share … It was a real missed opportunity to do that.”
And on ITV’s Peston last night, former shadow chancellor John McDonnell said that “They’ve thought, we can tackle the health service, people will forgive us in terms of the tax rises that have taken place, and I can understand that political gamble. But there’s so much more.”
What else we’ve been reading
Of the hundreds of thousands of stories of grief in Gaza, Wael al Dahdouh’s is one of the best-known. Nesrine Malik’s profile for the long read of the Al Jazeera journalist, who lost his wife and two children to an Israeli airstrike, is a devastating microcosm of the war’s impact: as she writes of a family video, “a record of all that was lost”. Archie
Thinking about the climate crisis can be anxiety inducing. But Marxist thinker Richard Seymour realised he could no longer avoid the issue. Maya Goodfellow interviewed him about his new book, which examines the ways the far right are exploiting environmental collapse for their own political agenda. Nimo
Emma Brockes is home for her first British Halloween in almost two decades – and her American children are distinctly unimpressed at how much less seriously we take it. Features telling ruminations on a transatlantic divide, and a good story about being mistaken for a bin. Archie
I really hoped that the girlboss, corporate feminism of the 2010s was dead – but some brands can’t quite let go. Emily Shugerman reports on the way women’s health companies are rebranding and commodifying birth control in post-Roe America. Nimo
Rachel Dixon looks at what’s driving the sudden popularity and ubiquity of limoncello, a liqueur that has been knocking about for decades. Nimo
Sport
Baseball | The Los Angeles Dodgers clinched the World Series by coming back from five runs behind to beat the New York Yankees 7-6. The result secured a 4-1 series win and the Dodgers’ second title in five years.
Carabao Cup | Interim manager Ruud van Nistelrooy’s first game at the helm of Manchester United gave fans something to cheer about: a 5-2 goal-fest against Leicester. Meanwhile, Timo Werner and Pape Sarr scored first-half goals for Spurs in their 2-1 triumph over Manchester City in their last 16 encounter.
Tennis | Katie Boulter reached the quarter-finals of the Hong Kong Open after a tough 7-6 (7), 6-4 win over Xiyu Wang of China. “That was quite a match,” said Boulter. “She’s an incredible opponent, she never lets up.”
The front pages
The budget gets a clean sweep of the front pages today. “Return of tax and spend” is the Guardian’s headline, while the Daily Mirror calls it a “historic” budget that delivers “Spending power”. “Reeves’ great £40bn tax gamble” says the i, and the Financial Times has “Reeves unveils £40bn Budget tax rise”. “Things can only get debt better” – that’s the Metro, and things go steadily downhill from there.
“A record tax burden” grumbles the Times, while the Daily Mail deplores “Reeves’ £40bn tax bombshell for Britain’s strivers”. “Halloween horror show” says the Daily Express, and the Telegraph puts a cartoon of the chancellor on the front – Reeves’s budget box has a jack-o-lantern face – under the headline “Nightmare on Downing Street”. The Sun has a hard-working pun about the continued fuel duty freeze: “At least she kept it down at the pumpkins!”
Today in Focus
Rachel Reeves’s big tax-and-spend budget dissected – podcast
The Guardian’s special correspondent Heather Stewart analyses Labour’s first budget in government for more than 14 years.
Cartoon of the day | Ben Jennings
The Upside
A bit of good news to remind you that the world’s not all bad
The Kichwa community in Otavalo, Ecuador, has long upheld its rich Indigenous heritage, championing traditional clothing, native language and long hair. Braids, in particular, serve as poignant symbols of resistance against the trauma of enforced hair cutting during the Spanish conquests. Irina Werning’s striking portraits powerfully illuminate the importance of preserving these traditional customs. “For us, hair is more than mere strands; it symbolises life – a legacy nurtured over a lifetime,” Kichwa community members Yarina and Estefanía Espín said.
Bored at work?
And finally, the Guardian’s puzzles are here to keep you entertained throughout the day. Until tomorrow.
