The Chancellor, Rachel Reeves MP, has a difficult balancing act to strike in Labour’s first Budget in almost 15 years. The new Government’s central mission is to boost economic growth, which will require significant public investment to rebuild public services and fund long-term infrastructure projects. However, the current state of the UK economy places major restrictions on the Chancellor’s spending power.

The UK’s debt- to- GDP ratio has hit 100% and the Government needs to raise £40 billion to protect key departments from real-term spending cuts and cover the in-year shortfall of £22 billion. On top of the dire public finances, the UK economy has flatlined since the Global Financial Crisis and living standards have stagnated, with average wages currently just £20 a week higher in real terms than in August 2008.

Workers have been hit with a one-two punch of the Covid-19 pandemic and the cost of living crisis. While employers face rising costs and worker shortages.

Can the Chancellor “fix the foundations” of the economy and begin the process of national renewal? In this context, here are three key questions for the Budget to help judge whether the policies and measures announced are likely make working lives better.

Will the Budget leave working people better off?

During the election campaign, Labour committed to not raise taxes on working people by keeping the headline rates of income tax, National Insurance, and VAT the same rate.

However, in the build up to the Budget, Government sources have announced a plan to raise employer’s National Insurance by 2% and reduce the threshold at which employers pay the tax. This will flip the 2% National Insurance employee cut that the previous Government announced in the Autumn Statement onto employers, and raise approximately £20 billion for the Treasury.

While this tax does not directly impact workers, it is reasonable to assume employers will look to pass some of these costs onto their staff. Employers may also look to cut costs in other ways which could depress wage growth and hiring.

The Chancellor also plans to freeze tax thresholds for an extra year up to 2028/2029 which will raise an additional £7 billion but could trap more workers into higher tax brackets due to fiscal drag.

There is some good news for lower paid workers. The Government have committed to a ‘genuine living wage’ and have changed the Low Pay Commission’s remit to factor in the cost of living when recommending minimum wage rates. Reports suggest the National Living and Minimum Wages will rise by at least 6%, which is above annual nominal wage growth of 4.9%.

However, with wage growth slowing and employers facing tax rises and new employment rights and regulations, many workers are unlikely to see any improvement in living standards in the short-run.

Will the Budget turbocharge Labour’s plan to Get Britain Working?

Labour is aiming to increase the UK’s employment rate to 80%, equivalent to an additional 2.4 million people in work. Boosting employment is a laudable goal since the UK is the only G7 economy with a smaller workforce than before the pandemic. This is largely due to the rapid rise of economic inactivity due to long-term ill-health which currently stands at near record 2.75 million.

Labour’s Get Britain Working White Paper is due out later in the Autumn, but early indications suggest the Government will shift the focus of Jobcentres towards employment support and away from monitoring claimant behaviour and benefit administration – and take a more localised approach.

While this is a step in the right direction, the Government has also committed to cutting the welfare bill by approximately £1.3 billion. The previous Government had planned to make welfare cuts through tightening the disability benefit eligibility criteria. The overall effect of these changes would have seen fewer disabled people and long-term sick receiving sickness benefit and even more facing the threat of sanctions.

Labour’s Employment Minister Alison McGovern MP, has pledged to ditch this plan and make the savings through other means. However, any welfare cuts that undermine the financial security of those on benefits risk harming Labour’s broader objective to get Britain working. Tightening support or introducing a greater threat of sanctions will pressure claimants to look for “any job” to avoid losing their benefits as opposed to finding suitable, high-quality and secure employment.

Insecure work is not solution to the UK’s economic inactivity problem. Work Foundation research has found that insecure workers are significantly more likely to fall back into involuntary worklessness than those in secure work.

While Ministers are right to be concerned about the rising benefits bill, they need to focus on a more holistic approach centred around scaling up voluntary employment support like Universal Support. This could providing an adequate financial safety net to support those with disabilities and long-term sickness into work, which in turn, will bring down the benefits bill.

Will this be a Budget for growth?

To achieve Labour’s central mission to boost economic growth, the Chancellor is likely to change the Government’s measure of debt which would enable it to borrow up to an additional £50 billion. This borrowing will be used to fund capital spending on major infrastructure projects and rebuilding public schools and hospitals.

Investment in the NHS will be particularly crucial to boosting growth. The Health Foundation estimates that 3.9 million workers currently have health limiting conditions. Enhanced support for the NHS would help bring down waiting lists allowing more people with health conditions to continue working while also enabling those out of work due to ill-health to get the health support they need to return to work.

The Chancellor faces the unenviable task of simultaneously stabilising the public finances, rebuilding public services and increasing investment to boost growth and productivity. Given the limited fiscal room to manoeuvre, it seems that the Government’s warnings about short-term pain will likely come to fruition. Its challenge will be convincing British workers – who have had to contend with a series of macroeconomic shocks over the past decade – that the short-term sacrifices will be worth it in the end.

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