Starmer's credibility and political future are at stake with the new budgets

LondonOver the past few weeks, a series of orders and counter-orders has surrounded the drafting of Keir Starmer's government's new budget for the period from April 2026 to March 2027. Announcements or hints of tax increases have been abruptly withdrawn following the anger of government MPs.

The final chaos erupted this Wednesday, an hour before Chancellor Rachel Reeves was due to appear before the House of Commons to explain to the British people what they should die of. The Office for Budget Responsibility (OBR), tasked with analyzing and verifying official forecasts, mistakenly published its analysis before Reeves revealed its contents. The leak, the final act in a tumultuous process, is unprecedented and could lead to an investigation.

With the Treasury's secrets exposed, the discovery doesn't inspire much optimism. And the MPs, having learned their lesson, behaved during the speeches of Reeves and the leader of the opposition, Kemi Badenoch, like excited students the day before vacation: cheering, shouting, and applauding their own side, and whistling at their opponents. At stake is not only Reeves's credibility, but the political future of the premierKeir Starmer.

Taken together, the announced measures imply a tax increase of around £26 billion by the end of the parliament (2029), far exceeding the planned additional spending of £11.3 billion. Even so, the OBR warns that the £22 billion of fiscal space (headroomThe total revenue obtained remains "scarce" given the uncertainties and risks stemming from various complex tax changes. In other words, the theory sounds good, but it remains to be seen whether practice will bear it out and if there are no unforeseen external shocks. headroom It's not just the difference between new revenue and additional spending, but the remaining structural margin in relation to the government's legal fiscal targets. To the nearly 15 billion, another 7 billion is added, stemming from positive macroeconomic revisions.

A narrow fiscal margin

In fact, the British economy suffers from endemic structural problems that have worsened in key indicators since Brexit. According to the Treasury, GDP will grow by 1.4% in 2026, half a percentage point below the March forecast. Similarly, the OBR estimates that the economy will have expanded by 1.5% in 2025, half a percentage point higher than previously projected. In short, a zero-sum game. As for inflation, it will reach 3.5% in 2025, three-tenths of a percentage point above the previous estimate, and will stand at 2.5% in 2026, also higher than projected in the spring. Productivity, one of the major weaknesses of recent decades, will not improve either: it will remain at 1% in the medium term, 0.3 percentage points below the previous estimate, a drag on growth and living standards.

One of the most controversial budget decisions is the extension of the income tax threshold freeze until 2031, far beyond what was initially planned. With previous freezes, tax brackets will not have been adjusted for nearly a decade, neither for inflation nor for wage increases. This creates what is known as drag prosecutorA disguised tax increase that boosts revenue because the thresholds remain unchanged while salaries rise. According to the OBR, 780,000 people will now pay this tax, and many others will fall into higher tax brackets. Reeves and the Labour Party had strongly criticized this practice while in opposition, but now they are extending its application.

Politically, the minister has received a favorable reception from the Labour group, which needs defensible measures in the face of a weary electorate that has lost confidence in an increasingly unpopular prime minister. The Treasury maintains that all social groups except the wealthiest 10% will benefit from the new budget, from the decisions that will be implemented until 2028-29. Reeves has championed a distinctly Labour budget: those with "deeper pockets" will contribute more, he said.

The markets have reacted positively. Fifteen minutes after Reeves began his speech, the pound was slightly higher and has continued to appreciate as he detailed the measures. The City's interpretation is clear: despite the increased tax burden, the budget strengthens predictability and brings coherence to the government's economic direction. But if the budget doesn't work and Britons don't experience relief from the cost of living, Starmer and Labour will face serious challenges. They will suffer greatly in next year's elections.