Nearly a year and a half into government, Labour has a number of real problems to deal with. Most of them of its own making. And with an economy in the doldrums, along with rising costs of the national debt, some hard choices are going to have to be made in the November budget.
It doesn’t help that Labour, through its 2024 election manifesto, painted itself into a box and left itself unable to increase employee national insurance rates, income tax or VAT. Instead, it chose to pummel employers with a rise in their national insurance costs and another rise in the national minimum wage, the results of which can be seen in rising unemployment – 4.7% in July 2025 – and fewer job opportunities for candidates.
The housing market is almost at a standstill, helped by Labour’s kite-flying of potential changes to land and property taxes, and inflation is still well above the Bank of England’s 2% target. Prices in the UK rose by 3.8% in the 12 months to September, making it the third month in a row that the rate has remained unchanged.
Businesses want help from the government, and they need it to start with a rollback on the increase in employers’ national insurance, as well as urgent reforms to the business rates system.
In highlighting these two elements, the CBI’s principal economist Martin Sartorius, commented “… retailers and other distribution firms will want the chancellor to deliver certainty and restore confidence to businesses and consumers alike.”
And the managing director of retailer HMV, Phil Halliday, said firms such as his have been “unfairly taxed versus other sectors” and that business rates have “definitely been a contributory factor to lots of retailers leaving areas of the UK.”
Regardless of which sector a firm operates in, retailers are having to deal with tough times, as evidenced by the number of vacant sites on the high street.
However, the problem extends beyond business-related confidence, as ultimately, businesses need customers and consumers – somewhere along the chain – to be in a position to purchase their goods and services. When confidence is low, budgets contract and wallets naturally stay shut.
Back in August, Reuters reported that some of the UK’s largest retailers had written to the chancellor to say: “further tax increases in her upcoming budget could undermine the government’s manifesto pledge to improve living standards.”
The open letter was coordinated by the British Retail Consortium and signed by 60 retailers, including Tesco, Sainsbury’s, Asda, Morrisons, Aldi, Lidl, John Lewis, JD Sports, Boots, Currys and Kingfisher.
Interestingly, on business rates, these firms are particularly concerned that any plans to reform business rates, or commercial property taxes, will increase the amount paid by them because they have the largest stores.
In other areas, the BRC signatories want action on the packaging tax, which they say will only lead to higher costs for consumers, further pushing up inflation when heating bills start being paid in autumn and winter.
Independant think tank the Institute for Government has advised the chancellor “not to fall into the trap of following the path of least resistance.” By this, it means avoiding changes to the main revenue earners, such as VAT, national insurance, and income tax, in favour of stealth taxes or ‘minor’ tweaks that can cause real pain. The institute specifically refers to winter fuel and welfare changes that saw U-turns, and other piecemeal changes that could further complicate tax laws or create distortions, such as a cliff-edge imposition of a wealth tax on homes.
All in all, being chancellor means navigating a set of thankless tasks and with it guaranteed unpopularity. Rachel Reeves, in tears in the Commons back in July, could be in for more grief at the end of November.