The new British government, led by the Labour Party, said it would substantially raise taxes and borrow more for investment as it sought to steer the country out of a long run of economic stagnation.
Rachel Reeves, the chancellor of the Exchequer, delivered her first budget — and the first one ever by a woman — in Parliament on Wednesday. In a nearly 80-minute speech, Ms. Reeves announced about 40 billion pounds ($51.8 billion) in tax increases, more than half of which would come from higher taxes that employers pay on their workers’ salaries. She also increased capital gains and inheritance taxes.
“The choices that I have made today are the right choices for our country,” Ms. Reeves said. “That doesn’t mean these choices are easy.”
The budget was the first big opportunity for the Labour Party to set Britain’s economic agenda after it was swept into office with a large majority in July’s general election after 14 years out of power.
But after a turbulent few months in office for the Labour Party, the budget has been seen as a reset moment for the party itself. Keir Starmer, the prime minister, said this week that the budget would “light the way” toward the government’s priorities of ensuring financial stability, improving public services and encouraging investment.
For months, Ms. Reeves has warned that this budget would include “difficult” choices, signaling that Britons will have to swallow pain now for a bigger payoff later. These choices, government officials have said, will help the government achieve its goal of making Britain the fastest-growing economy in the Group of 7.
On Wednesday, Ms. Reeves aimed to show restraint on public spending, despite the pressure to inject a lot more cash into Britain’s struggling public services. She announced more money in the next few years for teachers, defense and local authorities. But from 2026, day-to-day spending for government departments would grow 1.3 percent annually, after accounting for inflation, which analysts at the Institute for Fiscal Studies said would still leave some departments with very tight budgets.
At the same time, Ms. Reeves also set to reverse the downward trajectory of public investment. She said that over the next five years, the government would increase capital spending by £100 billion to invest in projects, such as school buildings, hospital beds and diagnostics centers.
In all, Ms. Reeves’s measures temporarily aid the economy but will leave the size of it “largely unchanged” in five years, said the Office for Budget Responsibility, an independent watchdog. It forecast slightly higher growth for this year and next but said growth would then slow to below 2 percent a year. But a sustained increase in public investment would raise the supply potential of the economy, which could increase long-term growth, it said.
The budget comes less than a week before the U.S. presidential election, which has the potential to roil the global economy. It is the first step in the Labour Party’s efforts to transform the British economy to make it more resilient in what Ms. Reeves has called today’s “age of insecurity.”
Before taking office, she described her vision as “securonomics,” which meant bolstering the finances of working people but also emphasizing national security in economic decisions like, for example, investing in crucial tech and climate industries and making strategic trade partnerships.
“There are no shortcuts, and to deliver economic investment, we must restore economic stability and turn the page on the last 14 years,” Ms. Reeves said.
She accused the Conservative Party of “economic irresponsibility” for cutting taxes before the election and overspending, which lead to a £22 billion “black hole” in public finances.
In an effort to avoid a repeat of the economic tumult that followed former Prime Minister Liz Truss’s “mini budget” two years ago, Ms. Reeves has vowed to stick to strict fiscal rules. Even as the government promised that there would be no return to austerity, day-to-day spending by government departments would have to be paid for by tax revenue.
Ms. Reeves also said she would make sure debt levels would fall, but to ease more investment, she changed the measure of debt that would be targeted to one that included the government’s financial assets. By that measure, debt would fall in three years.
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