This make-or-break Budget must match the chancellor’s fighting talk

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Editorial: She has broken records by becoming Britain’s first female chancellor, but Rachel Reeves’s bold reforms and her fealty both to her backbenchers and bankers risks unsettling the very people she needs onside

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Whatever else may be said for Rachel Reeves’ time as chancellor, she will be noted for personal innovation and reforms – albeit not always welcome ones.

She is the first female chancellor of the exchequer in the 800 years or so that the post has existed. She is right to be proud of that. (Sadly, she is also the first incumbent to have had to object to being subjected to “mansplaining” and worse.) Her tenure has also seen the end of any vestiges of the old practice of Budget “purdah”, whereby officials and ministers took a vow of silence and media chastity for months before the Big Day.

Yet the disastrous “scene-setting” speech three weeks ago saw Ms Reeves essentially deliver the first half of a traditional Budget speech, with a clear signal that a rise in income tax rates was on the way – only to U-turn in favour of the piecemeal “smorgasbord” to be unwrapped shortly. That was a first, too.

Now, on the eve of the Budget, reports of further unusual behaviour have given us more cause to raise an eyebrow. Perhaps there’s nothing wrong with the person running the nation’s finances sharing group chats with senior bank bosses, as those reports suggest. She does, after all, need to be in touch with market sentiment.

But it looks odd, to say the least, that she has been asking them to praise the Budget and to commit to investing more in Britain, and to do so, in effect, in exchange for her sparing them from another increase in the “bank surcharge” – a windfall tax increasingly levied in the absence of what economists term supernormal profits.

The banks, for one thing, employ independent and talented economists who are professionally obliged to make an objective assessment of the package she will announce. Then there are the traders, sometimes termed bond vigilantes, who operate solely on the basis of what is in the best financial interests of their clients – patriotism, let alone pro-Reevesian sentiment, won’t sway their decisions.

Last, but not least, there are the investors, who have a right to expect financial institutions to secure the best returns possible, irrespective of any tax breaks offered by the chancellor to the banks that manage other people’s money.

Backbench MPs and bankers alike have been courted by the chancellor to such a degree that one is left to wonder if it is at the expense of the British public. At any rate, we do not have long left to learn exactly how they feel about this Budget.

Ms Reeves’ attitude is especially cheeky in light of her apparent intention to restrict the cash ISA allowance to £12,000, as opposed to £20,000 now. Whether it would encourage savers to be more adventurous and buy equities remains to be seen, but it would certainly restrict the flow of reliable domestic funds for mortgage lenders such as HBOS, and at a time when a variety of other measures, such as new council tax surcharges and reforms to private rentals, are already destabilising the housing market.

The government’s interventions in the labour market are also giving some grounds for concern. The latest hikes to the national minimum wage and the national living wage are, as ever, welcome in principle – but not if, in practice, they serve to weaken business and job prospects in the longer run.

In real terms, the cumulative increases since the Blair administration introduced the reform in 1998 have seen its rates rise to around two-thirds of the median wage, on that measure one of the highest in the world. The trend has quietly reduced poverty and inequality, and sharpened incentives to take work, but, with an increasingly progressive income tax regime, it has also added to the “compression” of earnings across the range. But the main concern, coupled with the heavier taxes and regulations levied on business under governments of all parties, is simply the affordability of such rates in sectors such as hospitality, social care and leisure.

In any event, one record that Ms Reeves doesn’t seem that keen on breaking is for length of service, not so surprising in the circumstances, and the fact that she’d need to still be in post in 2034 to exceed Gordon Brown’s tenure. Still, she has told Labour backbenchers, who’ve generally been as unimpressed by her as she has been by them, that “I’ll show the media, I’ll show the Tories. I will not let them beat me. I’ll be there on Wednesday, I’ll be there next year, and I’ll be back the year after that.”

As one of her predecessors once remarked, that is only partly a matter for her.

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