Nervous Labour MPs Brace For A Pivotal Budget
5 min read
Labour MPs are braced for what is widely seen as a crucial day for the government as Rachel Reeves prepares to announce a tax-raising Budget on Wednesday.
The Chancellor is set to invite backbenchers to 11 Downing Street for pre-Budget discussions on Tuesday, having hosted another group of Labour MPs on Monday.
Last night, Rachel Reeves also delivered remarks to a meeting of the Parliamentary Labour Party in Parliament, where, in "good spirits", according to one MP who was present, she set out the core themes that ministers hope will cut through with the public: alleviating the cost of living, cutting NHS waiting lists, and reducing national debt.
She also urged Labour MPs to view the Budget as a package, warning that they are unlikely to support every single measure she announces in the House of Commons on Wednesday.
One Downing Street source framed the Budget as investment in the country under Labour versus austerity under Kemi Badenoch's Conservatives and Nigel Farage's Reform UK.
After a generally torrid few weeks for the Keir Starmer administration, the mood of some Labour MPs heading into the Budget is pessimistic and flat. One particularly downbeat backbencher predicted there would be “balls up like winter fuel". The government's hugely unpopular decision last year to cut winter fuel payments for pensioners, later abandoned after the public backlash was deemed too great by government strategists, still haunts the party.
Many Labour MPs will be cheered if, as widely expected, Reeves announces that the government will scrap the two-child benefit cap as part of its strategy to tackle poverty.
The decision has been a long time in the making, with the Labour government saying upon entering office last year that getting rid of the cap was unaffordable, and removing the whip from seven MPs who backed an opposition amendment pushing for its abolition.
Senior Labour figures like recently elected deputy leader Lucy Powell and Greater Manchester Mayor Andy Burnham have called for the cap to go. Angela Rayner, who resigned as deputy prime minister in September, recently told The Mirror that doing so would help "end the evil of child poverty".
The push is not backed by all Labour MPs, however.
There is a group of backbenchers on the right of the party who are sceptical about its affordability, and fear that while it will be liked by Labour members, it will not be popular with the wider public at a time when taxes are being increased. One Labour MP who holds this view said they feared that the government is being “pushed into totemic policy shifts to please its own base, rather than speaking to the country as a whole".
PoliticsHome understands some cabinet ministers have acknowledged in private their reservations about abolishing the cap.
“Keeping the left happy with handouts will at the same time piss off the middle [earners] who are waiting longer to have kids,” complained another Labour MP.
At the first meeting of the newly revived Tribune group of soft left Labour MPs last week, backbenchers were shown YouGov polling showing that scrapping the two-child benefit cap was backed by around a quarter of people, while nearly 60 per cent wanted it to stay.
Labour MPs hope that government strategists can persuade the public that tax rises, set to be announced on Wednesday, will be worth it for investment in public services.
While Reeves is now not expected to break the Labour manifesto promise not to raise income tax, she is set to pursue what Rachel Henry of the Institute for Public Policy Research think tank described to PoliticsHome as "scattered" revenue-raising measures, including raising business rates, lowering the ISA tax-free allowance, and a new levy on milk-based drinks, among other steps. The Treasury is also expected to introduce bigger taxes on gambling companies, which polling has found to enjoy public support.
The Chancellor can expect to be accused by her opponents of raising taxes on working people if she goes ahead with reported plans to extend the freeze on income tax thresholds. The freeze, first introduced by Tory Rishi Sunak in 2022 when he was chancellor, is described by critics as a "stealth tax" as, over time, it drags more workers into higher tax bands.
Paul Johnson, the leading economist who used to head the Institute of Fiscal Studies, told PoliticsHome that extending the freeze would eliminate around half of the estimated £20bn fiscal 'black hole' reportedly facing the Treasury "pretty much straight away".
With Labour continuing to trail Farage's Reform by significant margins in the polls, and both Starmer and Reeves facing dire personal ratings, the government is under pressure from its MPs to deliver a Budget that can help reverse its political fortunes.
The political headache facing Labour was captured in new Thinks Insight & Strategy research shared exclusively with PoliticsHome.
The research, carried out November 15-16, found that 23 per cent of people who voted Labour in 2024 said there was at least some chance they would back Reform, while over half (55 per cent) said the same about Lib Dems and/or Zack Polanski's insurgent Greens. These two groups have both grown by five per cent since June.
Ben Shimshon, CEO of Thinks Insight & Strategy, told PoliticsHome: "The challenge for the government is that the more they do to shore up their vote on one side of the ledger, the less attractive they become to those on the other side."
Additional reporting by Adam Payne and Nadine Batchelor-Hunt.
