That means Wednesday’s budget, the first by a woman in the 800 years that the role of Chancellor of the Exchequer has existed, will also be one of the most challenging.

Reeves has set the stage for one of the UK’s biggest-ever tax-raising events — adding to an already elevated tax burden which her Conservative predecessors took to the highest level as a share of economic output since World War II. She’s expected to raise around £35 billion ($45 billion) a year in tax and welfare savings by the final year of the parliament to spend on public services, alongside as much as £70 billion of new borrowing for investment over five years.

Despite the tax rises, it’s likely the Office for Budget Responsibility — the government’s fiscal watchdog — will deem the overall plan growth-enhancing. The investment and spending plans will automatically improve the OBR’s outlook by more than the tax rises harm it. Deutsche Bank economist Sanjay Raja expects the measures to boost GDP by 0.7% by 2030.

With memories of the Liz Truss mini-budget disaster still fresh and government debt issuance this year and next the highest on record outside the pandemic at close to £300 billion, Reeves is acutely aware the markets are watching.

Based on government briefings and UK media reports, here’s what to look for:

Tax

Reeves could raise as much as £35 billion in additional taxes. A sum of £32 billion — just over 1% of gross domestic product — would be a Labour record, matching Denis Healey in 1975 after he promised to “squeeze the rich until the pips squeak.” A £29 billion increase would equal Gordon Brown’s 2002 budget. Neither would beat Rishi Sunak’s 1.1% pandemic-era tax boost in 2021, or the 1.4% hike logged by Norman Lamont in 1993 after the UK crashed out of the European Exchange Rate Mechanism.

Labour has pledged not to raise rates of income tax, national insurance, value-added tax or corporation tax, which account for 70% of Treasury revenue-raisers. That leaves fewer options, and may lead to accusations the party has overstepped its mandate. Potential tax rises include:

• Jobs tax: Labour promised not to raise national insurance on “working people,” but an increase in contributions by employers is widely expected. A 1 percentage point rise would raise £8.5 billion. Reports suggest Reeves could go for a 2 percentage-point increase while cutting the threshold at which the tax bites.
• Income tax: Reeves may freeze income tax thresholds for two more years, raising £7 billion, after previously describing the policy as “picking the pockets of working people.” Sunak froze them in 2021, dragging millions of workers into paying more tax.
• Wealth Taxes: An increase in capital gains tax on shares is expected rather than equalizing rates with income tax. A 5 percentage-point rise in the lower and higher rates would raise around £1.5 billion. Scrapping the special 10% business asset disposal relief for entrepreneurs would generate about £1.5 billion. Removing agricultural and business relief loopholes from inheritance tax would save £1.5 billion. Increasing the standard inheritance tax rate to 45% from 40% would raise another £800 million.
• Already announced plans: Election pledges include levying value added tax on private school fees, raising £1.5 billion, reforming taxes paid by non-domiciled residents and private equity, raising £5.2 billion, and garnering £1.8 billion more from windfall taxes on oil and gas firms. Labour has rowed back some of the pledges.
• Bank tax: Reeves could target big profits made by banks from higher interest rates after four of the UK’s largest lenders made £9.2 billion in 2023. The New Economics Foundation has suggested £1.5 billion could be taken. But that would risk undoing Labour’s work in recent years to woo the City.
• Property tax: Reeves is expected to end temporary stamp duty cuts as planned, meaning the tax-free threshold will drop back to £125,000 from £250,000 from April, raising £1.8 billion a year by 2029-30 — though that revenue is already assumed.
• Fuel duties: Fuel duty is scheduled to rise every year in line with inflation, but the Conservatives canceled that for 13 years. If Reeves follows suit and retains Sunak’s “temporary” 5p cut from 2022, it would cost her £4.8 billion.
• Business taxes: The chancellor is expected to consult on re-balancing the business rates system by making online sellers like Amazon contribute more, and cutting the burden on high street firms. Support for companies hit by high energy bills after Russia’s invasion of Ukraine is expected to be withdrawn.

Spending

Tory spending plans implied £19 billion of real-terms cuts in 2028-29 for unprotected departments like justice and transport. Reeves — who’s vowed there will be no austerity under Labour — is set to reverse that as well as giving the National Health Service an additional £1.5 billion. She’s nevertheless told departments to find £3 billion in savings to help fill a £22 billion in-year spending hole she says the Conservatives left.

The government also plans to borrow more to invest in new hospitals, prisons and roads. Under Conservative plans, capital investment is set to drop to 1.7% of GDP by 2029, but Reeves has vowed to maintain it at 2.5%, costing £25 billion that year.

The government already controversially scrapped winter fuel payments for most pensioners, saving £1.5 billion, and ended plans to introduce an £86,000 cap on the amount the elderly have to pay toward their care, raising a further £1 billion. Labour wants to get more people on sickness benefits into work and is considering changes to save about £3 billion.

Fiscal Rules

Reeves is bringing in her own fiscal rules. The first is to pay for day-to-day spending out of taxes, leaving her free to borrow to invest. The OBR’s March outlook suggests she could meet it in the third year of the forecast with £6 billion to spare, and Deutsche’s Raja reckons increased tax receipts from better growth will give her £10 billion more. 

Her second rule is to get debt falling — but using a new measure of debt, likely to be public sector net financial liabilities. PSNFL captures some assets, like student loans and investments made through policy banks, and would give her £53 billion more borrowing headroom than the measure currently used. To reassure markets, Reeves is expected to move from a rolling five-year target to a tougher fixed date. “Otherwise it’s always in the future and it never actually gets met,” she said last week.

Maintaining investment at 2.5% of GDP suggests Reeves plans to borrow as much as £70 billion more over the parliament than previously forecast. UK government bond markets have reacted negatively, but Reeves is alert to the danger. She has expressed concern about “pushing gilt issuance further into record highs outside the pandemic.” Her “tough decisions” on welfare and first-year spending settlements for departments are designed to show markets she can be ruthless. As a result, she may increase borrowing by less than her rules allow.