Budget 2025: The same old Labour? Why their credibility might not be recoverable

Over and over again, in the run-up to the election and beyond, the prime minister and the chancellor told voters they would not put up taxes on working people – that their manifesto plans for government were fully costed and, with the tax burden at a 70-year high, they were not in the business of raising more taxes.

On Wednesday the chancellor broke those pledges as she lifted taxes by another £26bn, adding to the £40bn rise in her first budget.

She told working people a year ago she would not extending freezing tax thresholds – a Conservative policy – because it would “hurt working people”.

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On Wednesday she ripped up that pledge, as she extend threshold freeze for three years, dragging 800,000 workers into tax and another million into the higher tax band to raise £8.3bn.

Rachel Reeves said it was a Labour budget and she’s right.

In the first 17 months of this government, Labour have raised tens of billions in taxes, while reversing on welfare reform – the U-turn on the winter fuel allowance and disability benefits has cost £6.6bn.

Ms Reeves even lifted the two child benefit cap on Wednesday, at a cost of £3bn, despite the prime minister making a point of not putting that pledge in the manifesto as part of the “hard choices” this government would make to try to bear down on the tax burden for ordinary people. The OBR predicts one in four people would be caught by the 40% higher rate of tax by the end of this parliament.

Those higher taxes were necessary for two reasons and aimed at two audiences – the markets and the Labour Party.

For the former, the tax rises help the chancellor meet her fiscal rules, which requires the day-to-day spending budget to be in a surplus by 2029-30.

Before this budget, her headroom was just £9.9bn, which made her vulnerable to external shocks, rises in the cost of borrowing or lower tax takes. Now she has built her buffer to £22bn, which has pleased the markets and should mean investors begin to charge Britain less to borrow.

As for the latter, this was also the chancellor raising taxes to pay for spending and it pleased her backbenchers – when I saw some on the PM’s team going into Downing Street in the early evening, they looked pretty pleased.

I can see why: amid all the talk of leadership challenge, this was a budget that helped buy some time.

“This is a budget for self-preservation, not for the country,” remarked one cabinet minister to me this week.

You can see why: ducking welfare reform, lifting the two-child benefit cap – these are decisions a year-and-a-half into government that Downing Street has been forced into by a mutinous bunch of MPs.

With a majority of 400 MPs, you might expect the PM and his chancellor to take the tough decisions and be on the front foot. Instead they find themselves just trying to survive, preserve their administration and try to lead from a defensive crouch.

When I asked the chancellor about breaking manifesto promises to raise taxes on working people, she argued the pledge explicitly involved rates of income tax (despite her pledge not to extend the threshold freeze in the last budget because it “hurt working people”).

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Trying to argue it is not a technical breach – the Institute of Fiscal Studies disagreed – rather than taking it on and explaining those decisions to the country says a lot about the mindset of this administration.

One of the main questions that struck me reflecting on this budget is accountability to the voters.

Labour in opposition, and then in government, didn’t tell anyone they might do this, and actually went further than that – explicitly saying they wouldn’t. They were asked, again and again during the election, for tax honesty. The prime minister told me that he’d fund public spending through growth and had “no plans” to raise taxes on working people.

Those people have been let down. Labour voters are predominantly middle earners and higher earning, educated middle classes – and it is these people who are the ones who will be hit by these tax rises that have been driven to pay for welfare spending rather than that much mooted black hole (tax receipts were much better than expected).

This budget is also back-loaded – a spend-now-pay-later budget, as the IFS put it, with tax rises coming a year before the election. Perhaps Rachel Reeves is hoping again something might turn up – her downgraded growth forecasts suggests it won’t.

This budget does probably buy the prime minister and his chancellor more time. But as for credibility, that might not be recoverable. This administration was meant to change the country. Many will be looking at the tax rises and thinking it’s the same old Labour.