As the dust settles on Rachel Reeves’ first Budget – all eyes are on farms and markets, writes Natasha Clark

31 October 2024, 22:56 | Updated: 1 November 2024, 08:56

By Natasha Clark

@NatashaC

We’ve become used to doom and gloom warnings from economists coming out of our ears in recent years, and as the dust settles on yesterday’s Budget, today was no exception.

In the hours since the Chancellor delivered her first fiscal statement, there is some relief in parts of Westminster that “it wasn’t as bad as it could have been”.

Despite the huge expectations riding on the first major event of the new government, most government officials were breathing a cautious sigh of relief at the reaction to Wednesday’s Budget.

Their doom-laden pitch warnings of pain had worked, and the £40billion worth of tax rises were largely baked in.

There were no howls from the Labour backbenches, many of whom held up their order papers with genuine glee to cheer on the Chancellor as she sat down.

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The Treasury certainly had a sprinkling more of Halloween treats than I’d expected – with income tax brackets set be unfrozen, a penny off a pint, boosts for carers, those on Universal Credit and fuel duty frozen for another year.

Some baby rabbits Rachel Reeves took some pleasure in pulling out.

And with businesses heading up the brunt of the criticism, that left room for ministers to woo over the workers by just about keeping to their manifesto promise – by the letter, albeit certainly not by the spirit of it.

However, as I reminded some tired-looking Treasury officials yesterday, it can still take a while for a budget to unravel – and they aren’t out of the woods yet.

The mood from Labour MPs has been, overall, pretty positive, with most people happy enough with the package of measures revealed.

They think the public is willing to pay the price of higher taxes to fix the NHS and drive waiting lists down.

But others are concerned about how to show delivery.

That’s why you’ll have heard Reeves out earlier promising those 40,000 extra appointments a week will be delivered within a year.

One MP told me: “Delivery will be the tough bit – we need to show we’re actually changing things. That’s going to be hard.”

Initial focus groups showed voters were prepared to wait and see, give Reeves the benefit of the doubt to get on and deliver that change with a hike in NHS spending, and will wait to see the effects of more investment.

Politicians react to the Chancellor's first Budget

But it’s far from plain sailing.

The gloomy economic picture laid out on the Office for Budget Responsibility’s books yesterday actually downgraded some forecasts.

They’re far off from being able to deliver the fastest-growing economy in the G7 as it stands, according to their predictions.

Keir Starmer says he hopes he can defy the OBR’s expectations – here’s hoping so.

And as for borrowing another £100bn? That’ll get us just 1.4 per cent growth.

Economists are asking – is it worth it?

Especially when you look at what’s been happening with bonds, the markets, and the pound off the back of that extra borrowing.

We’ve seen an 18-month low in the pound, the price of 10-year government gilts having another spike, and markets closing down.

While the markets are certainly jittery ahead of the US election next week and another interest rates decision on the cards, it’s far from an ideal reaction for the Treasury, and they will be watching movements closely.

Cabinet ministers aren’t worried yet, but they’re hoping it’s just a temporary blip.

But speaking of interest rates, AJ Bell has warned the chance of another hold this year has become more likely, too.

You may have also thought that the IFS warnings coming from chief Paul Johnson might be a bit more optimistic under this Labour government.

While he thought borrowing more was “courageous” and it was “sensible” to rip up the fiscal rules, that was nearly the extent of the praise.

It won’t feel like Christmas has come early for the NHS, Reeves was slightly “overegging” the £22billion black hole, and there’s more “silly game playing” on spending plans.

Extra stamp duty on second homes will put up rents, we’ll be paying £100billion a year on debt interest, and the public finances are “shaky” at best.

A “decade of higher taxes” and lower wages than planned are on the cards as a result – something Reeves admitted herself on Thursday morning.

That’s quite something coming from a Labour Chancellor.

The Resolution Foundations’ initial thoughts were similarly pessimistic about the chances of a lift in living standards.

And with cuts to departments coming down the line, ministers are already worried about the scale of choices to come for them.

Though the reaction from business owners concerned about a huge NI bill was largely expected, the reaction from farmers to inheritance tax changes is another one to watch.

The Lib Dems have dubbed it the ‘tractor tax’ and say bringing them in to paying IHT on their estates will be the death knell for the family farm.

Some will say the £1million threshold is high enough, and Reeves defended closing the loophole for wealthy landowners who get away with dodging the tax when they die.

But LBC’s been hearing from a lot of medium and smaller farms who are concerned at the huge bills forcing their farms to become unsustainable to pass down to their kids.

And with IHT now affecting one in ten estates, it’s no longer just the super-rich who have to be worried about it.

No10 and No11 are lucky that the news agenda will this weekend move onto the Tory leadership race, and then the US election next week – curtailing time for any of the budget unravelling to dominate.

While the initial 24 hours has passed off without a huge hitch, we’re still waiting to see if this Halloween Budget leaves voters feeling tricked.