Labor's Budget Plan: Hope for Growth, but a Burden for Households?

The recent budget plan will worsen the lives of citizens in the short term while the government bets on long-term economic growth, according to the think tank Resolution Foundation. Finance Minister Rachel Reeves has decided to increase taxes and borrowing to finance public services—a clear break from the previous government, which focused on cuts. Nevertheless, the Resolution Foundation warns that the budget plan has not yet heralded a decisive shift away from the UK's reputation as a 'stagnation nation,' as both growth and living standards remain weak. On Wednesday, Reeves presented Labour's first budget since 2010, after the party returned to power in the July parliamentary election. The acting chair of the Resolution Foundation, Mike Brewer, mentioned that the changes will lead to better-funded public services in the short term. However, he noted that the increase in employers' National Insurance contributions would dampen wage growth and further strain family living standards. According to the foundation, which advocates for improving the living standards of low- to middle-income households, the new tax and benefit policies will impact all citizens. The poorer half of households will see an average reduction in their annual income by 0.8%, while the wealthier half expects a decline of 0.6%. Wealthy households will feel the biggest impact due to changes in capital gains and inheritance taxes. The think tank predicts that a combination of the already challenging economic situation, weaker growth due to increased employment taxes, and higher inflation will impact wage increases, resulting in real weekly wages rising by only £13 over the past two decades by 2028. In its manifesto, the Labour Party had promised not to raise taxes for working people—specifically excluding increases in VAT, National Insurance, or income tax. However, this promise is being questioned, as some claim that an increase in the employers' National Insurance rate would break this promise—a claim the government denies. The Resolution Foundation also points out that the decision to increase spending on public services this year and next will make the spending review in the spring difficult. Reeves has created only a 'relatively small margin,' according to the think tank. While the finance minister's new debt rule provides more leeway, most of these funds have already been used, meaning that even a small economic setback could force the government to raise taxes further.