Chancellor Rachel Reeves planning November budget to boost wages as UK falls behind

Chancellor Rachel Reeves has ordered Treasury officials to draw up a long-term plan to improve wages, in the run-up to a make-or-break Budget in November. The Chancellor, reeling from a series of dire economic figures over the summer, will aim to boost productivity through investment in infrastructure, including transport projects, and in skills.

It means growing economic output per person, rather than simply relying on population growth through immigration to grow the nation’s economy as a whole. Treasury insiders say the UK’s economy has stalled since the banking crisis of 2008-9. The UK has fallen behind countries such as France, Germany and the US by failing to build and to prepare workers for the modern jobs market - but economic output per person would be £15,000 higher today if productivity had continued at the same rate it did before the financial crash, with wages one third higher.

A source said: “The Chancellor doesn’t agree with the narrative that Britain is broken. But she knows that working people feel the economy is stagnating and they are not being rewarded for their hard work.”

The Budget will present “a longer term plan to make sure pay packets are improving”.

Infrastructure projects that could receive backing include a major new rail network in the north of England.

It remains to be seen how Ms Reeves will plug a black hole in the public finances following the Government’s decision to abandon efforts to restrict disability benefits while a review takes place, and the partial u-turn over means-testing winter fuel payments. She is reported to be considering a range of tax-raising measures, such as taxing landlords by imposing National Insurance on rental income.

However, stung by criticism of the National Insurance increase in last year’s Budget, she will ensure that smaller firms in particular are supported rather than facing additional costs.

Unemployment hit a four-year high over the summer, with 1.6 million looking for work, and inflation rose to 3.8%, almost double the official target.

Prime Minister Sir Keir Starmer is planning a reshuffle of his ministerial team which could come as soon as this week, but he may opt to make limited changes and the Chancellor’s job is thought to be safe.

A leading think tank has urged the Chancellor to impose a temporary tax on banks inspired by former Conservative Prime Minister Margaret Thatcher, who imposed a one-off tax on some bank deposits in 1981.

The proposed tax would hit banks such as Barclays, Lloyds, HSBC and NatWest which are raking in huge profits at taxpayers’ expense, according to the Institute for Public Policy Research. It says commercial banks have benefited from quantitative easing, a Bank of England measure to create money for the Treasury in response to the 2009 financial crisis, Brexit and the Covid pandemic, which is now costing taxpayers £22 billion each year due to interest rate rises.

Hiking a levy on bank profits could raise up to £8 billion a year, according to an IPPR report.

Carsten Jung, associate director for economic policy at IPPR and former Bank of England economist, said: “The Bank of England and Treasury bungled the implementation of quantitative easing.

“What started as a programme to boost the economy is now a massive drain on taxpayer money.

“While families struggle with rising costs, the Government is effectively writing multi-billion-pound cheques to bank shareholders.

“A targeted levy, inspired by Margaret Thatcher’s own approach in the 1980s, would recoup some of these windfalls and put the money to far better use – helping people and the economy, not just bank balance sheets.”

The think tank called for a “quantitative easing reserves income levy”.