10 minutes with Lord Philip Hammond: Our interpretation of his behind-the-scenes insight into Budget preparation from the perspective of a former Chancellor

^{What may be on Reeves' mind} 

From Lord Hammond's perspective, being in Reeves’s role today is markedly different from when he held the position. He indicated that, during his time as Chancellor, most major decisions were already settled two weeks ahead of Budget Day. The core measures shaping the Budget were effectively locked in, and he had a clear sense of the available fiscal space. What remained to be determined were the minor measures (classified as measures costing/spending below £1 billion). These smaller decisions, some of which raise revenue and others cost money, are the last options left open until Budget Day.

By contrast, Lord Hammond sees Reeves as operating in a far more volatile landscape. The Labour Party appears to be experiencing heightened anxiety and internal debate, leaving her in a more constrained and complicated position when it comes to deciding what the party should or shouldn’t commit to.

^{Current state}

On Thursday, 13th November, Reeves briefed that she had ditched plans to raise income tax, apparently after an improved fiscal forecast from the OBR. Lord Hammond was surprised by this move, which indicates pressure from within the Labour party so strong that Reeves felt she could not ride it for a couple of weeks in order to “deliver a rabbit” on budget day.

In our conversation, Lord Hammond advised that by about ten days before Budget Day, the substance of the Budget is largely determined. Reeves's focus will shift from substance to the delivery of the Budget and the narrative to justify the decisions made.

^{Pressures on the Chancellor}

Lord Hammond described the pre-Budget period as a time when pressure mounts from every direction. At this time, it can be assumed that Number 10 and the Prime Minister are heavily involved, while the bond market and equity investors require close attention. Add to this the expectations of Parliament, the Labour Party's internal expectations, public opinion, media scrutiny, and pressures from within the Cabinet.  

^{What happens on Budget Day?} 

From our conversation, we understand that the immediate aftermath of delivering a Budget is, as anticipated, extremely busy. Once the Chancellor leaves the Cabinet room, the focus shifts to shaping the narrative. We came away with the sense that the first priority is direct 1-1 phone outreach to the editors of the major news outlets, ensuring the Chancellor’s interpretation of the Budget lands before alternative narratives take hold. At the same time, senior party members move into their own broadcast rounds to answer any questions on the measures outlined.   

Lord Hammond shared that, once the phone-round of editors is done, a Chancellor will typically travel from London to a regional location, often by helicopter, to be on location for the media activities that follow, the next day.   

^{The day after the Budget}

The day after the Budget is the crucial “make-or-break” period for the Budget. It starts with the morning broadcast round, which effectively determines how the Budget will be judged and shapes public and media perceptions of it. This is the moment when the Chancellor must explain and justify the decisions made, and answer questions regarding the contents of the Budget and the logic behind these decisions. The rest of the  morning is typically spent in the regions, meeting businesses and communities on the ground, focused on demonstrating how the Budget connects to real lives. Once the Chancellor returns to London, the tone of activity will shift towards a post-budget analysis, led by the IFS on the afternoon following. The Chancellor and her team will be analysing furiously how the budget has landed, and seeking to influence media comment. Lord Hammond discusses the pertinence of the Institute for Fiscal Studies (IFS) Budget analysis, which is delivered after the Budget and is closely watched by any Chancellor. We have seen this contradict the Chancellor's analysis and provides an independent assessment of the measures proposed. The IFS Budget analysis undoubtedly shapes public conversation. The week following the budget will be politically important as media commentary spikes, and, for a Chancellor, it will be the eye of the storm. 

^{Reeves' current position}

From our discussion, we came away with the impression that Reeves is navigating a difficult and inherently contradictory position. On the one hand, she must comply with fiscal rules and undertake fiscal consolidation to address the black hole in public finances. On the other hand, Labour's agenda is focused on economic growth.

These policy agendas are in direct conflict as to comply with the fiscal rules; she must either cut spending or raise taxes. Having already demonstrated earlier this year her inability to get spending cuts through parliament, she is left with little option but to raise taxes, which will undermine Labour's economic growth agenda, pushing her into a so-called “doom loop” where higher tax cuts economic growth, which means she has to raise taxes still further to meet the fiscal rules, and so on, and soon.

Based on her repeated statements, Reeves seems to recognise that the UK’s economic challenges can’t be solved through ever-higher taxes or ever-increasing borrowing. The implication, therefore, is that the only sustainable lever is spending cuts, particularly in public services and welfare. While both she and the Prime Minister may be prepared to make these decisions, we sense that the political appetite within the parliamentary Labour Party for spending cuts does not exist.

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