The Guardian view on Rachel Reeves's speech: gambling on a mirage of stability | Editorial

"Rachel Reeves's speech was a pre-emptive confession that Labour would almost certainly break its manifesto commitment not to put up income tax in November's budget. The credibility gap between Labour's political theatre and the fiscal arithmetic has been obvious for weeks. The economic fundamentals haven't changed for the chancellor, only the politics have notably with Reform UK and the Tories making austerity policies central to their pitch."

"Chancellors don't usually give speeches before budgets and if they do, they tend to say nothing. But Sir Keir Starmer needed a line to bat away awkward questions from the Conservative leader, Kemi Badenoch, and Ms Reeves provided it. She has also given cover for the leadership's ideologically conservative fiscal policies, now enforced in parliament through a three-line whip on the two-child benefit cap during an opposition day debate about welfare."

"Ministers could have tabled a neutral government amendment which talked about keeping the two-child limit under review. It would automatically have superseded opposition amendments, avoiding a potential rebellion. But the government wanted a showdown with its critics. In the end, the Commons speaker did not call the amendments, but Ms Reeves took a chance to show the markets she wouldn't bend to her MPs. The pound and stocks fell anyway, suggesting traders weren't paying attention. This is a pyrrhic victory."

Rachel Reeves signalled that Labour will almost certainly raise income tax in the November budget, acknowledging a gap between its rhetoric and fiscal reality. Economic fundamentals for the chancellor remain unchanged, while political pressure from Reform UK and the Conservatives has shifted the debate toward austerity. Reeves aims to frame Labour as protecting services and jobs while painting opponents as intent on shrinking the state, preferring wealthier contributions to fund spending. The leadership enforced a three-line whip on the two-child benefit cap and sought confrontation rather than a neutral amendment, briefly reassuring markets despite a negative market reaction. Government spending this year will likely exceed receipts by about 6% of GDP, with roughly half of that extra cost flowing to banks and pension funds via interest payments on gilts.

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