The UK government, led by Prime Minister Keir Starmer and the Labour Party, is poised to unveil a new budget on Wednesday aimed at raising taxes to tackle rising public debt and fund essential public services. The budget comes as the government seeks to reassure both financial markets and voters while addressing a cost-of-living crisis that continues to weigh heavily on households.
Starmer has pledged to reduce National Health Service (NHS) waiting times and alleviate the prolonged economic strain on citizens, attempting to strengthen Labour’s position as the far-right Reform UK party gains traction in national polls. Finance Minister and Chancellor of the Exchequer Rachel Reeves faces the delicate task of balancing promises of support for households with the need to convince investors that the government maintains control over public finances. In a statement ahead of the budget, Reeves emphasized: “I will not return Britain back to austerity, nor will I lose control of public spending with reckless borrowing.”
Ahead of Wednesday’s announcement, Reeves introduced several measures intended to soften the impact on citizens, including above-inflation increases in the minimum wage and pensions, alongside freezes on rail fares and prescription charges. However, analysts expect that closing the estimated £20-billion ($26-billion) gap in public finances will rely heavily on tax increases affecting workers and small businesses.
Many businesses and workers are already concerned about how the budget will affect their daily lives and costs of operation. James Fitzegerald, a pub landlord in west London, voiced frustration over rising expenses: “It’s been disastrous in the last two years… food costs, duty increases, staff wages, and rising household costs are all taking a toll. Things are only going downhill, and we really need help from the government to make it viable.”
Britain’s economy faces a challenging backdrop, with a deficit approaching five percent of gross domestic product, high inflation, stagnating growth, and rising unemployment. The UK’s budget watchdog is expected to downgrade economic growth forecasts for each year of the current parliamentary term, further complicating the government’s fiscal planning. Markets will closely monitor Wednesday’s budget, as negative reactions could trigger a sell-off of UK debt, raising borrowing costs and straining public spending plans.
Labour has struggled to stimulate consistent economic growth since returning to power in July 2024 after 14 years of Conservative rule. Reeves’ previous decision to increase business taxes last year has been criticized as a factor behind sluggish growth. “The cost of living remains the top concern for working people, and the economy isn’t functioning well enough for those on the lowest incomes,” Reeves acknowledged. “Too many people are still struggling to make ends meet.”
Policy reversals have also dented the credibility of Starmer and Reeves, including controversial moves regarding disability benefits and pension-related fuel payments. The latest adjustments reportedly include shelving a proposed income tax increase, which would have contradicted campaign promises. Instead, the government is expected to freeze income tax thresholds, effectively pushing more workers into higher tax brackets. Additional measures under consideration include levies on gambling, a mansion tax on luxury properties, and caps on pension benefits. The health department has also extended the sugar tax to cover pre-packaged milkshakes and other milk-based drinks, marking another step in the government’s fiscal and public health strategy.