Rachel Reeves likes to pop on a bit of Beyoncé and go for a run to cope with the stresses and strains of being chancellor, she told Centrica boss, Chris O’Shea, during a CBI event at the Labour conference.
While the reception from many of the executives was warm, the intensity of the debate in Liverpool suggested Reeves should keep the trainers and tunes to hand.
In a series of interviews on Monday, she moved to dispel any remaining doubt that taxes were set to go up once again in November’s budget after last year’s historic £40bn increase.
Asked whether she stood by her promise to the CBI last autumn that she was “not coming back with more borrowing or more taxes”, Reeves conceded: “Well, look, I think everyone can see in the last year that the world has changed, and we’re not immune to that change.”
What remains in play is how the government will go about raising the extra revenue necessary to meet Reeves’s fiscal rules.
News that Labour hopes to lift the two-child benefits cap in the budget – at a cost of £3.5bn if implemented in full – only compounds the challenge.
Asked about the policy at a conference event with comedian Matt Forde on Tuesday, Reeves stressed the strained state of the public finances, pointing out that the reversal of the winter fuel allowance and botched welfare reforms would already cost the Treasury £7bn a year.
She said: “There’s not a lot of money to go round and we’re going to have to reflect that in the budget this year. When people say ‘oh well it’s up to Rachel to fund these things in the budget’, well yes, up to a point, but you can’t keep layering policy on policy and not expect it to have some consequences.”
In fringe meetings and bars across the sprawling conference site, backbench MPs, campaigners and policy wonks tried to second guess what specific tax levers the chancellor would choose to pull.
Some in government – including Darren Jones, chief secretary to the prime minister, Keir Starmer – appeared to flirt publicly with the idea of breaching the party’s manifesto tax pledges, which include not touching VAT, income tax or employee national insurance (NICs).
“The manifesto stands today because decisions haven’t been taken yet,” Jones told Sky News in what appeared to be a carefully chosen turn of phrase. “I’m not ruling anything out, and I’m not ruling anything in. Today, the manifesto stands.”
Until recently, the Treasury was still explicitly enumerating the pledges, with a spokesperson telling the Guardian last month: “We are protecting payslips for working people by keeping our promise not to raise the basic, higher, or additional rates of income tax, employee national insurance, or VAT.”
Reeves herself gave few direct hints to her thinking, aside from gesturing at a well-trailed increase in gambling taxation, which Gordon Brown has been advocating.
Privately, some in government are willing to entertain ditching the manifesto pledges but Whitehall insiders say Reeves is against the idea – and is not asking officials to present it as a policy option.
Reeves’s team point to last year’s budget, which included £8bn of tax increases on the wealthy through changes to inheritance and capital gains taxes and VAT on private school fees – as a guide for what is to come next month.
“The thing you have to realise is that Rachel felt last year’s budget was a success,” said one minister in response to the question of whether it wouldn’t be more straightforward just to breach the manifesto pledges.
However, some colleagues are concerned about the risks of making a series of small revenue-raising changes – like last year’s reform to inheritance taxes on farms – each of which could provoke a backlash.
“It’s the pasty tax thing: 20 worthy things that raise £1m each,” said one cabinet minister. “There will be some Treasury classics in there that everyone has said no to over the decades.”
Ultimately, Reeves’s allies concede that how radical they can be in rewiring the tax system depends on the size of the gap in the public finances identified by the Office for Budget Responsibility.
If it turns out to be £20bn, the Treasury appears minded to lean on a series of changes that can be packaged up as pro-growth. One theme is likely to be equalising the treatment of earned and unearned income – by charging landlords NICs on rental income, for example.
But if the target is north of £30bn, the manifesto pledges could come into play – alongside other potentially controversial options, such as property taxation and pensions tax relief.
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Labour’s economic argument against Reform also came into clear relief in Liverpool, with Reeves reminding Labour members theirs is the only party founded to represent working people. She pointed to interventions to support industry and enhanced workers’ rights, as well as a significant extra investment.
But while Reeves’s immediate audience was her own party, Labour also came to Liverpool concerned to win back the respect of a wary business community.
The CBI’s chief executive, Rain Newton-Smith, welcomed Labour’s focus on boosting capital investment but stressed that many businesses, irked by Reeves’s £25bn-a-year employer NICs rise, were reserving judgment until budget day.
She said: “The clear message from business is that we’re seeing the overall tax burden on business at historic highs. So it’s really important that we don’t see increases in business taxation at this budget.”
Newton-Smith welcomed one of the key announcements in Reeves’s speech, on tackling youth unemployment, but said businesses were waiting to see what role they were expected to play.
Some senior figures expressed frustration about the chancellor’s suggestion that business shoulder some of the burden of taking on out-of-work youngsters.
“Springing the NICs rise on us meant that the first thing we had to do was slash the number of apprentices we took on,” the boss of one large manufacturer told the Guardian.
“She needs to consider the effect of making it more expensive and therefore risky to take people on, and then turning around and asking us to fix the training gap for youngsters.”
Business leaders also felt that while some progress had been made on planning, there was a risk of premature celebration. Work needs to kick off within the next six months on several major projects if the government is to have much to show for its efforts by the time the county returns to the polls.
“They’ve grasped the nettle politically on a bunch of planning issues – Gatwick, Heathrow and elsewhere – but we need the follow through,” said one senior executive at a construction company.
Several corporate lobbyists remarked on how business turnout at the conference appeared to be lower than in previous years.
One CEO who attended the business summit, held in the bowels of the Liverpool arena and convention centre, complained about the high cost of involvement – at £5,000 excluding VAT for a ticket.
“It was good to hear from the PM but there were quite a few empty seats. I didn’t see many CEOs down there,” they said.
As business leaders and Labour members prepared to leave Liverpool, some professed themselves modestly reassured – but Newton-Smith spoke for many when she said: “All eyes are now on the budget.”
