After a big win in the July 2024 general election, Britain’s Labour Party returned confidently to office after 14 years in opposition. It won a parliamentary majority of 174 seats and could contemplate a full five-year term. Sir Keir Starmer’s government is now in crisis, scoring about 20% in recent opinion polls, and with three and a half years to go, his leadership is in question.

The right-wing populist Nigel Farage, leader of the new Reform UK party, which holds just five seats, is the bookies’ favourite to become the next prime minister.

UK economic performance had been poor under the Tories, the public finances were over-stretched and everyone knew it. The Labour pitch at the general election had been to lament the Tory failings, while promising to protect health spending and social transfers, and crucially without raising taxes on “ordinary working people”.

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Labour’s first budget in October last year, to the surprise of economists and other cynics, sought to square the circle created in the election campaign, with minor tax increases, strong safeguards around the big spending departments and optimistic targets for deficits and debt. Economic growth would somehow be enhanced, government revenue would improve and the debt build-up would be contained.

But the UK is over-borrowed, there is a big ongoing deficit and the interest rate on fresh borrowing is rising.

Unfortunately for the Chancellor of the Exchequer, Rachel Reeves, the independent fiscal watchdog, the Office for Budget Responsibility, continues to report, as she prepares her budget for late November, that the economy has refused to grow as instructed. The targets for debt and deficits are no longer credible.

There was a post-election alternative. Some readers will recall the 1987 events in Ireland when Fianna Fáil returned to power in almost identical circumstances. They had criticised the outgoing Government for loose budgets and rising debt, while seeming to promise a rosier future.

Their leader, Charles Haughey then visited the Department of Finance with the TV cameras in tow, announced that the cupboard was bare and that all bets were off.

The subsequent budget reforms worked, more or less, and the economy recovered strongly in the 1990s.

Keir Starmer must regret that he did not take the same trip to the nearby Treasury to announce that it was all the fault of the previous government and that things were much worse than feared.

Reeves will now have to raise taxes anyway, abandon the promises to protect public spending, or run the risk of a bond market backlash, even a Sterling crisis.

After a less-than-candid election campaign, Starmer has fallen into the trap of financing the looming budget deficit not from likely economic expansion, but from rosy projections of revenue.

The last several decades have seen a sluggish economic performance in the UK, a deep-seated problem to do with weak public and private investment and including poor scores on labour productivity.

All of this has been analysed intensively, countermeasures are possible, but it is well understood that there are no short-term fixes.

Perhaps the British economy could be more successful and productive after a decade or two of sustained policy initiatives but very little, apart from a spending bubble, can be achieved quickly.

The rate of economic growth is not a policy instrument at the command of governments.

The first Labour budget last year proceeded as if it were, and has collided with reality earlier than expected.

What must now be expected on budget day, 26 November, is a package of measures including tighter spending control and tax increases, including stealth taxes like the failure to index exemption thresholds and tax bands.

It would be better to admit that the first budget was a misunderstanding and increase some serious taxes that would bridge the gap, like income tax and VAT, which raise substantial revenue.

Last year’s fiddling with employers’ national insurance contributions and inheritance tax on larger farms created maximum push-back for very little revenue. The problem is that it is a year late for the gambit of blaming the previous government for the tax increases and the temptation is half-measures that will be judged insufficient.

UK public allocations will be squeezed again, which will not be welcome in Northern Ireland, where local revenue falls well short of spending.

The gap is filled by allocations from the Treasury in London, on the lookout for economies, and it becomes ever more difficult to sustain generosity to Northern Ireland when local and regional budgets throughout Britain are under scrutiny.

The absence of water charges in Northern Ireland and the generally low yield of property taxes will be an issue in future years, alongside reluctance to commit central government funds to local projects.

London’s stinginess has been partially offset by some project support from Dublin, but that may not last either.