Wednesday briefing: Five key messages that will define the budget

Good morning. There will be no triumphalism, no big giveaways and certainly no rabbits out of hats: this, Keir Starmer and Rachel Reeves have been at pains to tell us, is going to be a very grownup budget. And even though Reeves will promise today that “the prize on offer is immense”, we might also therefore expect it to be a painful one. Since the entire thing appears to have been briefed out in advance over the last few weeks, nobody can say they haven’t been warned.

In a way, it feels like two budgets: the optimism and ambition of a minimum wage rise, a major boost for the NHS, and significant new investment in infrastructure; and a bleaker story about misleading pledges, limited ambitions, and the biggest set of tax increases in budget history.

That is a measure of how the way Labour talks about the budget has changed since the election campaign. Today’s newsletter, with the Guardian’s economics correspondent Richard Partington, takes you through five key interventions that have defined this budget, and how they will help us understand what happens today. Here are the headlines.

Five big stories

1. UK news | The suspect charged with the murder of three girls in Southport is to be separately prosecuted on suspicion of possessing terrorist material and producing ricin, a powerful poison, police have said. Axel Rudakubana is due to appear in court on Wednesday.

2. US election | Kamala Harris urged American voters to elect a “new generation of leadership” in a speech at the same place Donald Trump spoke on January 6 almost four years ago. Likening her opponent to a “petty tyrant”, Harris told the crowd: “Donald Trump would walk into that office with an enemies list … I will walk in with a to-do list.”

3. Middle East | Israel is not addressing the “catastrophic humanitarian crisis” in Gaza, the US envoy to the UN has said, ahead of a deadline for the Israelis to improve the situation or face potential restrictions on US military aid. The warning came as Gaza’s civil defence agency said 93 people had been killed in an airstrike on a crowded block of flats.

4. Conservatives | Britain’s former colonies should be thankful for the legacy of empire, Conservative leadership candidate Robert Jenrick has said. Jenrick’s comments, which follow an agreement among Commonwealth leaders that “the time has come” to discuss reparations, were condemned as “an obnoxious distortion of history”.

5. Mexico | A team of researchers have stumbled on a lost Maya city of temple pyramids, enclosed plazas and a reservoir, all hidden for centuries by the Mexican jungle. The discovery was made possible by the use of laser mapping techniques in an area previously ignored by archaeologists.

In depth: How will the budget stack up against Labour’s manifesto pledges?

With five years until the next election, and a dire economic legacy to deal with, it is reasonable to say that we probably shouldn’t judge the success of Reeves’s budget too quickly.

On the other hand, Labour have got off to a rocky start. So it matters that the public broadly accept the fairly bitter medicine that’s likely to be handed out. Whether they will do so is likely to depend on whether they agree that the nasty bits are mostly the Tories’ fault – and whether, after paving the way with so many dire messages, Reeves can plausibly sell a more optimistic vision when she sets out her plans.

To answer that, it helps to run through how Reeves and Starmer’s language has shifted since the campaign – and whether each of the big messages they have run with is likely to be borne out today.

Sunday 26 May | “There’s not going to be a return to austerity under a Labour government” – Rachel Reeves

One of two central promises Reeves made about this budget before the election – and one that draws on traditional expectations of a centre-left government. “Reeves hasn’t spelled out precisely what she means by austerity,” says Richard. “But there’s an expectation that she wants to ensure that spending in every department is increasing in real terms. That is challenging to achieve, because Jeremy Hunt set a path where unprotected departments were going to see real-term cuts to their funding.”

A few weeks ago, the Institute for Fiscal Studies said that tax increases of about £25bn would be necessary to keep spending rising in this way. That looks likely to be met.

While Reeves’s definition is a reasonable one, those on the left may also point out that a more ambitious way to think about ending the austerity era would be to begin to move back towards where budgets were before the beginning of the Conservatives’ period in government. But to return to the kind of spending increases we saw in the 2000s would be a much larger commitment than Reeves is making today.

Sunday 9 June | “We will not be raising taxes on working people” – Keir Starmer

Labour’s vexed use of the phrase “working people” comes down to an obvious semantic tension: on the one hand, it is a hand-wavy term used to refer to ordinary people, incorporating the amorphous group variously described by Ed Miliband as the “squeezed middle”, by Nick Clegg as “alarm clock Britain” and by Theresa May as the “just about managing”. But unlike those terms, “working people” has another, much more straightforward meaning: people who work for a living. Well, yeah.

That is the source of the painful evasions heard from so many Labour ministers as they have been asked for a definition. A spokesperson sought to clarify Starmer’s use of the phrase with the mystifying explanation that he had “the broadest sense of who was in his mind’s eye when it comes to the importance of economic stability”. Eventually, Starmer resorted to saying that working people “know exactly who they are”.

“It hasn’t been a great look, for a government that says it will do things differently, to play with semantics in this way,” Richard says. “But equally, critics perhaps go too far when they try to attack Labour by talking about those with second homes and shares.”

Where has all this got us to? A budget that is likely to stick to commitments not to raise income tax, VAT, or national insurance – but will probably increase employer national insurance contributions, a tax that most economists say will ultimately be paid by employees even if it doesn’t show up that way on their payslips. Reeves is also likely to extend a freeze on income tax thresholds, meaning many “working people” will be dragged into paying the higher 40% tax rate on income above £50,270.

Monday 29 July | “There were things that I did not know, things that the party opposite covered up” – Rachel Reeves

The discourse around the so-called “black hole” in the government finances left by the Conservatives has been very heavily discussed, and I will spare you a lengthy repetition of it here: for a more detailed exploration, see this First Edition from last week, or this analysis by Paul Johnson of the Institute for Fiscal Studies.

In short: yes, the Tories did some creative accounting, and there were aspects of the public finances that Labour couldn’t have fully known before it took office; but the broad shape of the legacy was very obvious before the election.

“We should expect Reeves to say that this doesn’t just affect the government in the current financial year – that it is going to persist throughout this parliament,” Richard says. “It was very clear ahead of the election that the public finances were not on a sustainable trajectory, and that the Conservatives only met their fiscal rules through smoke and mirrors.”

Thursday 24 October | “We will be changing the measure of debt … we need to invest more to grow our economy” – Rachel Reeves

Last week, Reeves finally announced a change that has been trailed for some time: a new way of assessing debt that permits more borrowing for long-term investment. At the same time, her other fiscal rule will require all day-to-day spending to be covered out of taxation, not borrowing.

This is probably the part of the budget that those on the left will be happiest about. “Labour hope that it will ultimately be transformative,” Richard says. “It is designed to target what is basically the British disease – not just 14 years, but three decades of underinvestment relative to comparable advanced economies that has left us with crumbling infrastructure. But it will take time.”

When the announcement was made, the UK government’s borrowing costs increased on global financial markets. “They can’t ignore that, but we should say that we’re in quite a different place to where we were after Liz Truss and Kwasi Kwarteng’s mini-budget,” Richard says. “They’ve done a lot to keep key bodies like the Office for Budget Responsibility and the Bank of England on board. A lot of people will tell you that the chaos in 2022 was partly because of the absolute disregard for those institutions.”

Monday 28 October | “Embrace the harsh light of fiscal reality” – Keir Starmer

This line is arguably the culmination of Labour’s communications strategy around the budget: make it sound like a brutal but honest reckoning with reality that is required to allow a more optimistic approach in the future. Starmer’s phrase here almost sounds religious – and feels a long way from his tone back in May when promising to avoid austerity.

“It is a message about stability as a bedrock for investment in the UK, and for security for households as well,” Richard says. “Governments typically have their greatest political capital straight after an election, so it is not unusual that you would have a tough budget that leaves room for tax cuts or spending in the future.”

Perhaps Labour could have had more room for manoeuvre if it had sent that message before the election – and there is also an argument that, in taking so long to prepare the ground, it has allowed a sense of drift and internal disagreement to take hold.

“It will certainly be a tax-raising budget,” Richard says. “But it will also be a budget that protects large swathes of what Labour has loosely defined as working people. And I would cut them a bit of slack on timing. The absolute priority has been taking time over the decisions. This is a budget that’s going to define the next five years.”

What else we’ve been reading

• Chris McGreal visited a soup kitchen in Saginaw, Michigan, to interview diners about the forthcoming US presidential election. Like the rest of the country, the room was deeply divided. Nimo

• Marina Hyde is good on the transfixing moment that Saoirse Ronan broke the chatshow banter rule by saying something difficult and true: that it isn’t hilariously weird to suggest that you may have to use your phone as a weapon. Archie

• To distract himself from studying for medical school exams, Roland Bull decided to reorganise his childhood stamp collection. It was a classic procrastination move, but a welcome walk down memory lane. Nimo

• It’s pretty easy, it turns out, to find enormous old houses for sale on Instagram for peanuts. Emma Russell’s excellent piece asks some of the people who bought them about the raccoons, mould and asbestos that come as part of the deal. Archie

• Emma Graham-Harrison and Artem Mazhulin’s report on the scale of “systemic” sexual violence against Ukrainian men in Russian detention centres is harrowing, but an important insight into an issue that is rarely spoken about. Nimo

Sport

Football | Rúben Amorim is poised to be confirmed as Manchester United’s mana­ger after Sporting said the Premier League club were ready to pay his release clause of €10m (£8.3m). After Sporting’s cup victory against Nacional on Tuesday night, Amorim said: “Nobody knows if it was my last match”.

Baseball | The New York Yankees kept the World Series alive with an 11-4 win against the Los Angeles Dodgers. After losing the first three games in the best of seven series, the Yankees’ powerful batters finally burst into life, led by Anthony Volpe’s home run with the bases loaded.

Cricket | England men’s and women’s international cricket will no longer be screened on free-to-air TV, after the England and Wales Cricket Board failed to secure a deal with the BBC. Twenty20 internationals will instead be shown behind the Sky Sports paywall.

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