The Two Weeks That Will Be: UK Budget Edition

Saxo has teamed up with Helen Thomas from BlondeMoney to launch a series focussing on the UK Budget. Here she details what to look out for in the next two weeks.

How Rachel Reeves must hope she could keep her head down until the Budget. She keeps saying that she will make the "numbers add up" but she doesn't even know what number she needs to find yet. That changes on Friday 31st October when the OBR deliver their final "pre-measures" forecast to the Treasury. Such stock is put on the OBR's model that debate rages over whether they have already taken their snapshot of market parameters, thus ensuring the biggest weekly drop in 10y Gilt yields since April would not have been counted, making Reeves' task even harder. 

This is madness. Politicians need to get away from the idea that a government's plan is only judged at fiscal events. Reeves' desperation to move to only one event per year and maximise headroom by kitchen-sinking tax and spend decisions belies an administration that has failed to grasp what government is for. Not being Liz Truss is a necessary but not sufficient condition for success. Reeves' "plan" to increase gambling taxes, no change to levies on banks, cutting VAT on household energy bills, "can't leave welfare untouched" and then raising income tax anyway might momentarily assuage market concerns. But then Gilt investors will immediately turn to what comes next. The ensuing recession and concomitant increase in borrowing for a government that has no mandate for any such measures will be fatal for Reeves and ultimately Starmer.

Their enemies await two opportunities to build their arsenal of ammunition.

• On Saturday we will get the Deputy Leader election result, which will see the "anti-Starmer" candidate Lucy Powell win. The last time Labour had a deputy leadership election in government in 2007, Harriet Harman won. Gordon Brown promptly refused to make her deputy prime minister. It is never helpful to an embattled prime minister for an alternative lightning rod with their own electoral legitimacy to emerge. 
• On Thursday, the Caerphilly by-election for the devolved Welsh Senedd will see victory for either Plaid Cymru, or, more likely, Reform. Although turnout is likely to be low, it will be totemic for the diminution of Labour support. Since the end of WWI it has only ever returned Labour victors. Keir Hardie took his first seat as Labour leader in Merthyr Tydfil, half an hour up the road. Losing this seat will also complicate the electoral maths in the Senedd as it would put Labour on 28 seats in the 60 seat assembly, leaving them having to turn to Plaid or independent members for support.   

For Helen's look at the market implications of the recent Labour party conference, click here.