This article was published in The Telegraph on 22 November 2025.
I know first-hand how stressful putting together a Budget can be. On one occasion, flagship childcare measures had to be dropped because we couldn’t afford them. Then a week later, they were reinstated because the Office for Budget Responsibility told me that getting more parents into work would raise GDP by enough to cover nearly all the cost. On one autumn statement I was expecting to have to raise taxes (or find “revenue raisers” in Treasury jargon) when the fiscal forecasts changed dramatically: we ended up cutting employees’ National Insurance and introducing full expensing for businesses.
The only thing that is certain is uncertainty. So at the start of any parliament, it is always sensible to build up headroom. Typically, changing economic forecasts mean a swing of about £20bn – in one direction or another – of margin between budgets. That is an average number and not the maximum possible. So if you really want to be in control of your own destiny, you need headroom of around £30bn. The last chancellor to get close to that was Rishi Sunak in 2022.
So I will support Rachel Reeves if she gets headroom back to more stable levels. But that is where the warm words are likely to end. Because the most disappointing thing about this year’s shambolic Budget process is a constant repetition of the myth that somehow tax rises are “inevitable”. The Chancellor is right to have fiscal rules and stick to them. But to do so she has made a deliberate choice to raise taxes rather than reform welfare. That is a great shame: hiking tax will damage growth whereas overhauling a failing welfare system would boost it.
Since the pandemic something has gone badly wrong in our welfare state. According to the Centre for Social Justice, a million people may soon earn more from welfare than they would working full time at the National Living Wage. For some time now, about a thousand people are being signed off from having to look for work every day, the majority for reasons of mental health. Recently that number has more than doubled, turning a festering problem into a crisis. The result is that we are torpedoing the country’s finances and destroying our national work ethic.
There is an alternative: returning the working age welfare bill to pre-pandemic levels would save £47bn a year in real terms by the end of the fiscal period. Not a single tax rise would be necessary and headroom could be more than doubled.
Sadly after failing to get much smaller welfare reforms past her own backbenchers, the Chancellor has made a different choice. All over the world, countries that are growing faster than us generally have lower taxes. The rest of us are stuck in the economic slow lane. After borrowing £350bn to support families in the pandemic, it was necessary to put up taxes as the last government did. But we always had a plan to bring them down when it was affordable and responsible to do so – a world of difference to where we are today.
Just look at the devastating impact of the tax rises in Labour’s first Budget: 180,000 fewer workers on payrolls following the employers’ National Insurance hike. Family farms and businesses being forced to sell up. Businesses are talking of moving abroad instead of investing at home.
I expect the tax rises this time will be less overtly anti-business. But they will erode incentives to work, save and invest – the very thing a dynamic economy needs. Instead they will fund a bigger public sector as the private sector’s share of the economy shrinks. That, in turn, will make markets even less confident we can repay our debts.
Nor is this about “austerity” although I will always defend George Osborne’s willingness to take difficult decisions in 2010. He inherited an economy where nearly £1 in every £4 being spent by the state was being borrowed – and took action to sort things out.
We all want good public services. The question is how to find a smart way to fund them. Having been responsible for the NHS for longer than anyone else, I know that the only way to secure its long-term future is to make sure the economy grows fast enough to be able to afford to fund the long term pressures it faces. That means increasing spending as a dividend of economic growth – not ahead of it. That’s why the real fiscal rule we should be following is that over an economic cycle public spending will never increase faster than economic growth.
If you unlock economic growth, it becomes possible to find more resources for public services. In 2018, I negotiated with the then chancellor Philip Hammond for a £20.5bn increase in the NHS budget over five years. At the time it was its biggest ever single increase. And the potential of the economy remains strong: in an AI century we have the world’s third largest technology ecosystem. When innovation matters more than ever, we have the most respected universities outside the US. In a world of tariffs on products, we are the world’s second largest services exporter, including one of its largest financial services hubs in London. Despite all the gloom following the last Budget, PWC still said that a survey of 5000 CEOs in over 100 countries rates the UK as the second-most appealing country to invest in globally.
But if we get things wrong in the Budget, we risk fuelling an anti-business narrative that chokes off the growth we need. That’s why the IMF, the World Bank and the OECD all advise that spending-based consolidations harm growth less than raising taxes. The Chancellor should listen, or we will remain stuck in a low growth trap.
