An early Budget may prove tricky for Rachel Reeves

The writer is a former chief of staff to the previous chancellor of the exchequer

The speed with which Sir Keir Starmer has made decisions so far suggests that the Labour government isn’t hanging around. A desire to keep this pace up may lead to a late September or October Budget. 

It is already too late for this to happen earlier than September 18. The Office for Budget Responsibility needs 10 weeks to produce a forecast. If it hasn’t been commissioned by July 17 then the earliest possible date will be whenever parliament sits after the Conservative party conference in October. 

But I suspect the Treasury will be advising the new chancellor to take even longer than that. The OBR’s timetable means it will struggle to include any of the growth or tax reform policies set out in Labour’s manifesto. The “major measures” deadline is the point by which any significant policy needs to be submitted. For the Conservative Budget I was involved in earlier this year, that was two weeks beforehand. So for a September 18 event, all big changes would have to be worked up and submitted by the first week of September. 

In practice this means any new policy that needs a lot of work couldn’t really be assessed by the OBR. Even anything that needs a 6-12 week consultation would struggle. For instance, the Treasury was planning to consult on inheritance tax changes affecting non-doms in time for November, not September. 

Less time also makes it very challenging to convince the OBR of the growth impact of your policies or, even better, to upgrade their growth forecasts. The OBR did positively score the previous government's childcare reforms and cuts to national insurance. But it didn’t for planning reforms and changes to financial regulations designed to increase private sector investment.

That doesn’t bode well given Labour’s emphasis on the same policies. In fact, if I were chancellor Rachel Reeves I would be worried about what the OBR has previously said on planning in particular. It didn’t change its growth forecasts for any of the housing and planning reforms of the early coalition years. Nor did it downgrade growth when the Conservatives dropped national housebuilding targets.

In even worse news, it’s about now that the OBR looks at the long-term growth rate. Unless anything has changed, officials will be warning of the dangers of a downgrade from 1.6 per cent a year. This is already more optimistic than the Bank of England and high rates of economic inactivity show no signs of letting up. Both are reasons used to reduce, not upgrade, growth. 

So a September fiscal event could mean no growth benefits and no time to reform the tax system. You can quickly and easily change tax rates. And the government will need to do so to afford the public sector pay deals that have to be resolved by the end of July. But unless Labour repeats last year’s approach of accepting the pay rises but getting the relevant departments to largely fund them, taxes will need to go up. Finally, tax receipts have come in lower than predicted while the inflation outlook is about the same. Starting fiscal headroom is therefore likely to be reduced if the OBR is commissioned now.

Maybe the OBR will have a change of heart and decide planning reform has a near-term impact on growth. It might also ignore the tax receipts and say the 1 per cent spending assumption is credible without an additional injection of public money. If all of that happens it will be quite the conversion. Even more so if it happens in time for September.

There are tricks Reeves could use to mitigate some of this, such as changing the fiscal rules or claiming things are worse than she expected. But one still means more borrowing and the other doesn’t give any extra fiscal space. Whenever she decides to hold the Budget, relying on the OBR to raise its growth outlook is unlikely to work as a tactic to avoid tough decisions on tax and spend. Treasury officials are no doubt telling her exactly this right now.