The 2025 Budget presented by Chancellor Rachel Reeves has offered a mixed bag for the Labour government, balancing policy wins for the party’s base with a concerning economic forecast. While scrapping the benefit cap for larger families and unveiling a long-awaited child poverty strategy have cheered up Labour MPs, the broader fiscal picture paints a less rosy scenario.
The decision to redistribute more taxpayer funds to the least well-off is a quintessential Labour policy that solidifies the party’s identity. Prime Minister Keir Starmer will use this as a rallying cry, arguing it is the right thing to do both morally and economically. The government hopes this will quell dissent within the party ranks after months of unease about Starmer’s direction.
However, the economic realities underlying the Budget are far from encouraging. Debt levels remain sky-high, growth predictions are sluggish, and welfare spending is set to balloon. This conflicts with pre-election promises from Labour to prioritise business-friendly policies and economic growth.
Some in the business community feel “betrayed”, arguing the government has sacrificed opportunities to drive growth and support aspiration in favour of shoring up its political position. One senior figure lamented: “Taxpayers and businesses have been betrayed and both have long memories.”
The government disputes this characterisation, pointing to decisions on Heathrow and new nuclear investment as evidence of its commitment to growth. Starmer will also emphasise his desire to cut red tape and speed up the planning system in a speech next week.
Yet the overall fiscal picture paints a gloomy outlook. Inflation is expected to remain elevated, while the growth in people’s spending power is predicted to be “dismal”. The public’s trust in the government has also been dented by the messy Budget process, with accusations of misleading information about the state of the public finances.
In the best-case scenario, the policy changes offer Labour a clearer identity and a fighting chance of weathering the economic storm. But the financial realities mean there may be little economic comfort in the party’s political comfort zone. As one business leader warned: “Everyone will just not hire – there’s nothing to create confidence for us when we desperately need it.”
