Labour chancellors love looking like hardnosed administrators. But three times in the past, Labour chancellors have chosen austerity, and every time they have been thrown out of office at the subsequent general election.
In 1931, Philip Snowden introduced swingeing cuts to public expenditure. The Labour government was thrown out of office the same year in a rout which left the party with a paltry 51 MPs.
In 1976, Denis Healey went ‘cap in hand’ to the International Monetary Fund (IMF) to procure a massive loan and robustly defended the cuts that they demanded in return for the bailout by appearing the fiscal hardman at the Labour Party conference. In retirement, Healey would reveal the loan wasn’t necessary after all. Nevertheless, Labour fell to a historic defeat at the following general election.
In 2008, Alistair Darling promised that after the next election, Labour would “cut deeper than Margaret Thatcher”. Darling’s post-election budget never came to pass, as Labour went on to lose the 2010 election.
The consequences of Labour’s austerity missteps
Labour chancellors never seem to learn the lesson that when their party chooses austerity, the public doesn’t reward them with re-election. Quite the opposite, they almost always throw them out.
It’s a salient lesson the government would do well to realise, as we approach the midpoint of this parliament. Rachel Reeves will give her second budget as chancellor on 26 November, which is widely expected to include tax rises. The signs are not looking good for the chancellor or her beleaguered PM. The government is deeply disliked.
When asked to name the government’s main achievements after one year, the most common response from the public when asked was ‘nothing’. Rumours of a leadership challenge have begun. If this budget is badly received, it could spell the end of Reeves and Starmer. The government has a very stable majority, so it will carry on, but whether the prime minister and chancellor can survive a badly received budget is a very open question.
The original mistake Reeves made, which has proven disastrous, was to shackle herself to fiscal rules which have proven a political dead end in government. To stand by her own formula of high taxes, cutting public services and welfare, and no borrowing to invest, will continue to provoke the antipathy towards the Labour government that Reform UK Ltd has thrived on throughout the summer.
Autumn budget options
So, what to do? Here are four radical, workable and popular policies which the chancellor can introduce in the autumn which maybe, just maybe, will see Labour recover in the polls.
1. Abolish the OBR and break the fiscal rules
The Office for Budget Responsibility (OBR) was created by David Cameron and George Osborne in 2010. Osborne justified it at the time by saying the government urgently needed to reduce the deficit. The deficit is now larger than it was when the Tories came to power.
Ostensibly an unbiased organisation, the OBR provides a veneer of bland technocracy for an economic formula which prioritises reducing the public sector with a disregard for the social impact of doing so. If Reeves is serious about the economy, she should immediately announce plans to abolish it.
2. Rediscover the joy of tax – and tax wealth, not work
Since the OBR’s creation, subsequent Conservative governments have been pursuing the fantasy economics of continuing to provide a high standard of living with lower and lower taxes. The Tory obsession is with cutting tax at all costs, disregarding the impact on wider society. The result is that Britain is one of the most unequal, unfair and unjust societies in the whole of Europe.
In March 2025, Reeves said:
“We cannot tax and spend our way to higher living standards and better public services.”
Preeminent among the reasons why the government is failing, is the attitude to the economy expressed by the chancellor in such a bald declaration. Germany has overall higher rates of tax than the UK and enjoys a consistently higher standard of living and better quality of public services. Reeves omitted to mention that Tory governance has demonstrably weakened the public services and lowered standards of living. precisely because they have doggedly pursued tax cuts regardless of the cost to society.
The government should stand firm and declare confidently that the Tory fantasy of fully funded public services combined with widely libertarian levels of tax, is a recipe not for good government, but for chaos. It should move immediately to claw back some of the profit enjoyed by companies after the pandemic, some of whom are boasting record figures.
The government should immediately consider a 2% levy on assets over £10mn, an inheritance tax, a mansion tax, a Tobin tax, and a new tax on the gambling industry as a bare minimum. But it should go further. Raising income tax would be unpopular, but arguably necessary.
3. Introduce £18 an hour minimum wage
The minimum wage was not intended to subsidise poverty. A lot has happened since the minimum wage was introduced. A fact which is often overlooked, is that when New Labour was elected in 1997, they inherited a long boom from the Tories, with the last recession ending in 1992. With both GDP and inflation looking healthy from 1992 onwards, introducing the minimum wage was a low-risk, high-reward policy that led to dramatically improved outcomes for working people and their families.
The difference with 2025 is stark. This time Labour was not elected after a long boom. They were elected after the longest period of wage stagnation in living memory. This difference in fortunes between New Labour and the current administration is often overlooked by many, including possibly by the government itself.
The chancellor should resurrect a proposal from the TUC in 2022 and introduce a significant rise in the minimum wage. A true living wage of about £18 or £20 an hour should just about do it. Aside from being good economics in itself, it is plausible such an eye-catching policy would help rebuild Labour’s wandering coalition.
4. Make slashing the cost of living the paramount consideration
The conventional wisdom states that Labour is haemorrhaging voters to Reform, primarily due to three issues: immigration, asylum and multiculturalism. What is often overlooked is that, according to polling data from YouGov, Reform voters are just as likely to be concerned about the cost of living, inequality and the super-rich as most other voters. Some 74% of Reform voters believe that big business in the UK takes advantage of ordinary people. And 73% believe ordinary people don’t get their fair share of the nation’s wealth.
Into this atmosphere, a series of eye-catching policies aimed at raising living standards, combined with an aggressive levelling-up programme, will go a long way to restore Labour’s electoral coalition and get former Labour voters who have defected to Reform back on side.
Looking ahead: a chance for recovery before 2029
The next election may not be until 2029, which is still a long way off. There is time for the political weather to change. As I have pointed out before in Yorkshire Bylines, the populist right has a habit of underperforming at elections. Underneath the bluster and bloviating that accompanies the election of populist right parties, when the public go to the ballot box, often they turn away from the right-wing nationalist parties.
However, there is a significant minority of voters who will reliably vote for nationalist parties come what may. This was seen in the recent election in Norway, where an unpopular incumbent Labour Party retained power after years of poor opinion polling. This trend seems to be continuing in Europe at least. There is time for Rachel Reeves to turn things around, and a Reform prime minister is not a foregone conclusion, but she needs to jettison the failed formula of her first year in office.
The choice is hers.
