When Rachel Reeves unveiled her cost of living announcements last week, some observers grandly labelled it a 'mini Budget'. However, she may have been uneasy with that comparison, given that Liz Truss's mini Budget nearly bankrupted the country and toppled her government in 49 days. Yet, within a week, the criticism of Reeves' measures has been vindicated. Ofgem's announcement that the energy price cap will rise by 13 per cent—more than four times the rate of inflation—has rendered her package seemingly meaningless and left the chancellor appearing powerless.
What Reeves Announced
Last week, Reeves unveiled a series of modest measures: free bus travel for under-16s, and VAT cuts on tickets for theme parks and attractions during the summer holidays. While these may assist families planning staycations or seeking to entertain children during the long summer break, they do little to address the core financial pressures facing households.
The one significant measure was raising the mileage tax claim rate from 45p to 55p per mile—a boost for white van drivers and plumbers, as the chancellor framed it. However, Reeves sidestepped the big-ticket issues. She wisely avoided imposing cost limits on supermarket essentials, but surprisingly took no action on energy bills.
Reeves argued that her December Budget had already delivered £150 in bill reductions. Yet, that benefit will be overshadowed when average bills rise by around £200 this autumn. The real reason for her inaction harks back to the Truss mini Budget: the massive energy bailout that spooked markets and brought down that government. Reeves had little economic or political room to manoeuvre.
Political Context
The Starmer government is teetering on the edge, awaiting Andy Burnham's potential push over the precipice—provided he wins the Makerfield by-election. This political fragility makes it difficult to enact significant changes. In Whitehall, civil servants are likely waiting to see who will be prime minister and chancellor by year's end, rather than prioritising the demands of current officeholders.
Meanwhile, Trump's Middle East war has driven up energy bills and tested the limits of the £20 billion headroom Reeves set in her last Budget. Unwilling to loosen borrowing rules for fear of a bond market run—another Truss legacy—she lacked the funds for a major energy bill intervention.
The political frustration is palpable. As new bills land on doorsteps, an already deeply unpopular Labour government will face even greater voter ire. Tony Blair's recent intervention highlighted that frustration over Labour's failure to pursue cheap energy is a key criticism. Ed Miliband's Net Zero policies are clearly unhelpful when money and political capital are scarce.
Whoever runs the Treasury by winter must find a way to reduce energy bills without bankrupting the country.
