Ministers fear being ‘screwed’ by Reeves budget

One of the recurring complaints heard at the Labor conference this year was: “Is this it? Keir Starmer’s first annual meeting since his party came to power saw few fireworks planned.

The speeches were largely innocuous, the Cabinet remained largely on message and the lack of new things to say meant the press spent more time talking about the things Starmer doesn’t like: the briefings against Sue Gray, the gifts he accepted and a union. led a left-wing rebellion over winter fuel.

The new Labor MPs quickly blamed this gap on the press team, responsible for the absence of a grid full of announcements. “We need to have more to say,” says one of this year’s participants. But the main reason for this lack of news is that the party is on hold until next month’s budget.

The Chancellor chose not to have an emergency budget when entering government so that she could take time to assess the situation and consult the OBR (something Liz Truss did not do in her mini- budget). But the downside is that the event weighs on the government and limits what it can do and say in the meantime. “I think it was a mistake not to act sooner,” says one former Labor man.

Reeves was working on the budget preparation from Liverpool between commitments and has stepped up preparations now she is back in Westminster. Even though his decision to talk about a £22bn budgetary black hole, and then cut fuel payments for pensioners, proved Labor’s most talked about decision so far in its first few months, it should just be an appetizer. The budget is likely to be the defining moment of Starmer’s first year – and perhaps his government.

The view at 10 and 11 Downing Street is that the only thing they have on their side is time – another four years or so and a large majority, which should mean stability. So they should make the tough decisions now – in the hope that as the election approaches, they can strike a more positive note.

But it depends on MPs, businesses and voters making what Starmer called “painful” decisions. This is why there is frustration within the party because, before this delicate budget event, so much goodwill was wasted on trivial things. “I don’t think voters will be thinking about the next election about the gifts or even about Sue Gray, but it does take a toll on morale when you know the next few months will be tough,” said a government adviser.

“It’s really difficult,” warns a Reeves ally. The chancellor is trying to strike a careful balance by warning against tricky decisions blamed on Tory heritage, while not going so far as to scare off businesses and investors, given that mission no. of this government is supposed to be economic growth.

The meaning of her approach was highlighted at the conference where she warned against difficult choices while smiling about the positive days ahead. Some thought his plastered smile was a bit exaggerated, but see the positives.

“It seemed a bit forced, but at least it shows she gets the message that we need a little sunnier uplands,” says a party official. However, complaints about the Labor day that followed – with attendees complaining about lack of access for the £3,000 charge – show it is harder to keep matters in check in government than in opposition . “The business community was furious after this,” one lobbyist said.

The budget will force Reeves to show his hand and make some tough choices. She is under pressure to scrap the cap on two-child benefits, after narrowly avoiding a major rebellion in the House of Commons earlier this year. This could happen – but if it does, it will likely be accompanied by stricter rules for benefit claimants. “This is the kind of thing MPs are prepared to go to war for,” says one party member. The Chancellor believes, however, that the current social benefits plan is not viable.

The response some Labor figures have given in the past to all this is to tax the rich. However, Reeves is aware that going too far could result in a drain of the country’s wealth. This is why any changes to capital gains tax require careful calculations so as not to appear to be punishing entrepreneurs.

The Treasury has warned that Labour’s current no-harm policy could also disappear – so discussions are underway to water it down. But if Reeves does that, then she’ll have to find new money elsewhere to pay for pledges like breakfast clubs that were supposed to come from the non-dom raid.

Ministers already fear – in the words of one of them – of being “screwed” in the budget. Reeves and his efficient deputy Darren Jones warned there was no money available. But there is a glimmer of hope for departments that are heavy on infrastructure. The Labor government could overhaul fiscal rules to allow more borrowing for capital spending.

This would probably be the most popular measure within the Labor Party. The Unite union – which now spends much of its time attacking Keir Starmer – has welcomed such an approach. But it is also potentially the riskiest sector for businesses – with warnings already that going too far in borrowing more could lead to a bad market reaction.

This means that between a backbench rebellion, a wealth flight and a market backlash, Reeves faces danger on all sides that she must avoid if the new government continues to veer even further off course. .