Reeves said her budget will include £40 billion ($51.8 billion) worth of tax rises to plug a black hole in the public finances, allow for investment in public services and for compensation payments.

“Any Chancellor standing here today would face this reality and any responsible Chancellor would take action,” she said. “That is why today, I am restoring stability to our public finances and rebuilding our public services.”

— Karen Gilchrist

Reeves repeated her claim that Labour in July exposed a £22 billion ($28.5 billion) “black hole” in the previous Conservative government’s spending plans.

The independent Office for Budget Responsibility is due to release a report addressing this claim and publishing its latest economic outlook on Wednesday.

“Today, on top of the detailed document that I provided to the House in July the government is publishing a line by line breakdown of the £22 billion black hole that we inherited, which shows hundreds of unfunded pressures on the public finances,” she said.

She also said that the OBR review would say that the previous government “did not provide the OBR with all the available information to them” in order to create its Spring forecast in March.

“Had they known about these ‘undisclosed spending pressures that have since come to light,’ then their Spring Budget forecast for spending would have been, and I quote again: ‘materially different.’ Let me be clear, that means any comparison between today’s forecast and the OBR’s March forecast is false because the party opposite hid the reality of their public spending plans,” she said.

The £22 billion figure has proven controversial. Former Finance Minister Jeremy Hunt in July wrote to Simon Case, head of the British civil service, calling Labour’s claims about the public finances “deeply troubling.”

Hunt said the alleged £22 billion gap differed from the “main estimates” for spending presented for approval before members of Parliament on July 17. He added that the disparity in figures risked bringing the politically neutral civil service into disrepute, since estimates are signed off by its senior officials.

Hunt this week said that the OBR would breach its political impartiality by publishing its report on the shortfall on the same day as the budget, because it would be used by Reeves to justify tax rises.

— Jenni Reid

Reeves has begun delivering the 2024 budget, highlighting that it is the U.K.’s first-ever one presented by a woman.

“This government was given a mandate. To restore stability to our country, and to begin a decade of national renewal. To fix the foundations,” she said.

“Change must be felt. More [sterling] pounds in people’s pockets. A [National Health Service] that is there when you need it. An economy that is growing, creating wealth and opportunity for all, because that is the only way to improve living standards. And the only way to drive economic growth is to invest, invest, invest. There are no shortcuts.”

She added, “To deliver that investment we must restore economic stability and turn the page on the last 14 years.”

– Jenni Reid

The U.K.’s FTSE 100 was seen ticking lower in the lead-up to Reeves’ budget announcement.

The index was down 0.44% to 8,183 by 11:42 a.m. London time, less than an hour before her speech.

Sterling also dipped 0.36% to trade at $1.2968.

Reeves is pictured on Downing Street, posing for the chancellor’s traditional red box photo less than an hour ahead of her budget announcement.

Business veteran Warren East urged greater clarity on the U.K.’s much discussed industrial strategy in Wednesday’s budget, saying greater guidance on upskilling and infrastructure plans were particularly crucial to spur investment.

“So far the noises coming out of the government are encouraging to hear, but we’d like to hear some more detail,” East, who served as CEO of both Rolls-Royce and Arm, told CNBC’s “Squawk Box Europe” Wednesday.

“Over the next 12 months, if we can demonstrate really getting on and doing it, that will give business a lot of confidence. And business really is the vehicle through which all of this is going to be delivered,” added East, who is currently chair of air traffic control services organization, NATS Holdings.

— Karen Gilchrist

U.K. Trade Minister Douglas Alexander said that Wednesday’s budget would repair the country’s finances and provide critical reform.

“This will be a budget that, if you like, repairs the fiscally impaired balance sheet we inherited, delivers economic stability, delivers economic investment, and delivers policy reform,” Alexander told CNBC’s Dan Murphy on Tuesday at the Future Investment Initiative in Riyadh, Saudi Arabia.

— Karen Gilchrist

Former Conservative Investment Minister Dominic Johnson on Wednesday defended the Tory’s record in government, saying allegations of a black hole in the public finances were “disingenuous” and insisting that Reeves’ proposed tax hikes would do little to boost growth.

“I’m not really sure about these black holes,” he told “Squawk Box Europe,” noting that he did not trust estimates of a £22 billion — and growing — reported spending shortfall.

Johnson also criticised Labour for slamming the economy and said anticipated tax rises on international investors such as wealthy non-doms were scaring away potential growth drivers.

“They have to start being more responsible in how they talk about the economy and they have to be more thoughtful about how they genuinely provide growth —and it’s not going to come from tax hikes,” he said.

“Having the international investor base come to London and base themselves here is an enormous domestic advantage,” he said. “Even talking about frightening them away is a massive problem,” he added.

Johnson indicated, however, that Reeves’ proposed changes to the U.K.’s debt rule were “a very sensible idea,” conceding it was a measure he had been unable to enact while in office.

— Karen Gilchrist

U.K. bond yields hovered at multi-month highs Wednesday morning as markets remain anxious about a proposed loosening of the country’s borrowing rules in Reeves’ budget announcement.

The yield on the benchmark 10-year gilt dipped less than a basis point at 4.312% by 7:30 a.m. London time, having reached their highest level since July during Tuesday’s session. Yields and prices move in opposite directions. One basis point equals 0.01%.

Traders are cautious on Reeves’ proposed changes and any increase in borrowing which could spark a sell-off, as it did in dramatic fashion with former Prime Minister Liz Truss’ unfunded tax cuts just over two years ago.

— Karen Gilchrist

Reeves said Tuesday that the U.K.’s minimum hourly wage for over 21-year-olds would rise by 6.7% to £12.21 ($15.87) from next April, in a signal of what could be further support measures for “working people” in Wednesday’s budget.

For younger workers aged 18 to 20 years old, the minimum pay rate will rise by 16% to £10 an hour, while for apprentices aged 16 to 17, the hourly rate will rise 18% to £7.55.

The increase is intended to keep the minimum adult wage at two-thirds of median earnings, after fresh data showed average earnings were higher than originally thought in 2023 and expected to grow further.

The government, which has vowed to protect “working people,” said the measures are expected to benefit more than 3 million workers.

— Karen Gilchrist

After months of commentary from Labour officials, economists are eyeing billions of new public spending and tax rises ahead.

The party has already announced some of the areas it will gain extra tax revenue from, including changes to the rules on so-called “non-doms” whose permanent residence is outside of the U.K. for tax purposes; a higher energy profit levy; an increase in duties paid by overseas nationals buying U.K. residential property; and the introduction of value added tax (VAT) on private school fees.

Researchers at bank Barclays said in a note last week they expect between £20 billion ($26 billion) and £36 billion in additional spending for 2025 to 2026, offset by around £23 billion in extra revenue from tax increases — with higher employer contributions to National Insurance, a general taxation, playing a key role.

Citing government sources, the BBC has reported that the budget will both raise the percentage that employers pay in NI per worker, and also lower the rate at which they begin to pay it. This could raise a total £20 billion, according to economists.

Consultancy Deloitte highlights several unknowns to look out for in the budget, including on business rates, capital gains tax, inheritance tax and changes to taxes on the performance of carried interest payments in private equity.

Economists at Investec said in a note Monday that budget measures could include higher capital gains taxes on the sale of shares; closing or reducing the benefit from the “carried interest loophole;” potential changes to the pension system, such as a reduction in the lump sum amount that can be drawn down tax free; and the closure of some inheritance tax loopholes. Hikes to air passenger duties and bank corporation tax surcharges could also be raised, the said.

Analysts also say so-called “sin taxes” could be a Labour target, on areas such as gambling, vaping products and tobacco.

— Jenni Reid

Reeves last week confirmed she intends to change U.K. fiscal rules as part of the budget, enabling her to free up billions of pounds for investment.

Writing in The Financial Times, Reeves said the change “will make space for increased investment in the fabric of our economy, and ensure we don’t see the falls in public sector investment that were planned under the last government.”

Reeves did not specify exactly what the investment rule would change, but it has been reported the Treasury could target public sector net financial liabilities (PSNFL) in the U.K.’s measure of debt, rather than public sector net debt.

The PSNFL measure takes in a wider account of the government’s balance sheet, including financial assets and liabilities, compared to public sector net debt.

The Institute for Fiscal Studies, an influential think tank, said on Sept. 30 that a change in the fiscal rules to target PSNFL would offer as much as £50 billion ($64.8 billion) of additional headroom for the government.

— Sam Meredith

U.K. Prime Minister Keir Starmer and Finance Minister Rachel Reeves have delivered one message clearly in the run-up to the budget: pain now, for gain — in the form of economic growth — later.

Starmer has said his government will take “painful” decisions in order to close a hefty budgeting shortfall left by the previous administration, adding that those with the “broadest shoulders should bear the heavier burden.”

An early controversial decision has been to introduce means testing on winter fuel support payouts for pensioners.

His pledge not to raise taxes on “working people” has sparked debate over what defines that group. Subsequent comments by Labour figures have suggested this is a commitment not to raise income tax or national insurance contributions; but higher taxes for business owners or those who make income through shares or assets such as property have not been ruled out.

Reeves has vowed that there will be “no return to austerity,” referencing the economic program introduced by the Conservative Party in 2010 in the wake of the global financial crisis which involved deep cuts to public spending.

She has said this is because she will increase investment in areas including infrastructure and the energy transition.

All eyes are now on how Starmer and Reeves attempt to balance promises to boost public investment and increase funding to struggling areas such as the National Health Service, while also meeting their self-proclaimed “fiscal rules” to move the budget into balance and see debt fall as a share of GDP within five years.

Close attention will be paid to the response of the U.K. bond market to Wednesday’s budget, which comes two years after a huge package of unfunded tax cuts announced by former Prime Minister Liz Truss caused yields to spike.

“If there’s one thing bond vigilantes hate more than an expansive budget it is a surprisingly expansive budget,” George Lagarias, chief economist at Forvis Mazars, said Tuesday — noting this explains why some upcoming changes have been leaked to the press in recent days.

“It is a challenge when a new Chancellor is presenting a budget. An even bigger one when it is on behalf of a completely new government, especially from a party known for fiscal expansion. The level of difficulty is further raised by the fact that bond markets have been especially jittery in the past few weeks, as traders find themselves in need to readjust their rate expectations for the U.S., in light of stronger growth data,” Lagarias said.

“Shifting the accounting rules is a very old practice and might be less effective at a time when bond markets are looking carefully [at the Budget] … Ultimately, however, governments will need to figure out ways to significantly improve productivity if they are to maintain their citizens’ way of life,” Lagarias added.

Joe Maher, assistant economist at Capital Economics, said in a note Monday that the current macroeconomic backdrop was “much less conducive to a bond market panic than [under Truss] in September 2022,” when it was feared fiscal expansion would push inflation and interest rates higher.

“By contrast, we suspect that investors are now likely to be more tolerant of looser fiscal policy given inflation has fallen back to the Bank of England’s 2% inflation target and interest rates are likely to trend downwards,” Maher said.

Maher added that bond market nerves should also be eased by Labour’s repeated assurances on its fiscal prudence, the likely need for less of an increase in government borrowing than Truss’s plan would have required, and the fact that increased borrowing would be for public investment.

— Jenni Reid