Why Claims That Labour’s Budget Brought Down Inflation Are Economically Illiterate
Claims continue to circulate that Labour’s October 2024 budget brought down UK inflation. More than a year later, this assertion still demonstrates a fundamental misunderstanding of both economic causation and temporal logic. The following analysis exposes why this claim was not just wrong, but impossible.
The Fundamental Timeline Problem
The most basic error in this claim is one of simple chronology. Rachel Reeves delivered Labour’s first budget on 30th October 2024. Current inflation data reflects price changes that occurred in the months leading up to measurement. It was literally impossible for a budget to affect inflation figures that predated it.
When inflation figures for October and November 2024 were published, they represented price movements from September through November 2024. The budget could not have influenced events that had already occurred when it was announced. This is not economics, it is basic temporal logic.
Anyone claiming the budget brought down these inflation figures is engaging in magical thinking, where government policy somehow travels backwards through time to affect prices that had already been set weeks earlier.
How Budget Policy Actually Affects Inflation
Even if we ignore the timeline impossibility, the mechanism claims fail economic scrutiny. Budget policy affects inflation through demand-side channels that operate with substantial time lags.
The Transmission Mechanism
Government budgets influence inflation through a multi-stage process that takes 12 to 18 months to fully materialise. First, fiscal changes must be implemented. Businesses and households then adjust their behaviour in response. These behavioural changes gradually affect aggregate demand. Only then do prices begin to respond to the altered demand environment.
For example, if a budget increases government spending, that spending must first be contracted, delivered, and paid for. The recipients then spend or save their increased income. Only as this money circulates through the economy does it potentially create demand-pull inflation. This process cannot occur in weeks.
What the October Budget Actually Did
Labour’s October budget contained several significant fiscal measures, but none that could rapidly reduce inflation. The centrepiece was a £25 billion increase in employer National Insurance contributions. This is a supply-side cost increase that, if anything, creates inflationary pressure by raising business costs.
The budget also increased public spending, particularly on NHS and education. Increased government spending is expansionary fiscal policy, typically associated with stimulating demand rather than suppressing inflation.
Neither of these measures would rapidly reduce inflation. In fact, orthodox economic theory suggests they would create mild inflationary pressure over time as they work through the economy.
What Actually Brought Inflation Down
The decline in UK inflation from its 11.1 percent peak in October 2022 to near the 2 percent target by late 2024 resulted from entirely different factors, all of which were well underway before Labour took office.
Energy Price Normalisation
The inflation spike was driven primarily by the energy shock following Russia’s invasion of Ukraine. Gas prices that had surged to unprecedented levels in 2022 returned toward historical norms during 2023 and 2024. This single factor removed the largest component of the inflation surge.
Supply Chain Recovery
Post-pandemic supply chain disruptions gradually resolved throughout 2023 and 2024. Container shipping costs fell from their peaks. Port congestion eased. Semiconductor shortages diminished. These supply-side improvements reduced cost pressures across multiple sectors.
Monetary Policy Impact
The Bank of England raised interest rates from 0.1 percent in December 2021 to 5.25 percent by August 2023. These rate increases worked through the economy during 2023 and 2024, suppressing demand through higher borrowing costs, increased mortgage payments, and reduced business investment.
This demand suppression was painful. Household finances were squeezed. Business confidence fell. But it achieved its intended effect of reducing inflationary pressure. By the time Labour took office, this process was well advanced.
Global Commodity Price Stabilisation
Global commodity prices, which had surged post-pandemic, stabilised and in some cases declined during 2023 and 2024. Food commodity prices fell from their peaks. Metal prices normalised. These global trends reduced imported inflation into the UK economy.
The Rising Unemployment Evidence
If we needed further evidence that the budget was not responsible for falling inflation, we need only look at what has actually happened in the labour market over the year following the budget announcement.
Post-Budget Labour Market Deterioration
In the year since the October 2024 budget, unemployment has risen significantly. The unemployment rate increased from 4.3% in late 2024 to 5.1% by August-October 2025, with 1.83 million people unemployed. This represents an increase of around 327,000 unemployed people over the year. Businesses facing the £25 billion employer National Insurance increase responded predictably. Hiring freezes were announced across multiple sectors. Redundancy consultations increased. The labour market softened substantially.
This creates deflationary pressure, but not through good policy design. Rising unemployment suppresses inflation by destroying demand. People without jobs or fearing job loss reduce spending. This demand destruction does indeed reduce inflation, but at the cost of economic pain and human hardship.
The Mechanism of Damage
The employer National Insurance increase operates as a tax on employment. Every job now costs businesses more. Rational businesses respond by employing fewer people. Some respond immediately by cancelling planned hires. Others move more slowly, allowing natural attrition to reduce headcount. But the direction is clear.
This is the budget’s actual near-term economic impact. Not a clever policy that reduced inflation, but a blunt instrument that increases unemployment, which as a secondary effect will eventually suppress demand and therefore inflation. It is rather like claiming credit for reducing traffic congestion by closing roads.
The Conflicting Pressures
The employer National Insurance increase creates two opposing inflationary pressures. On the supply side, it increases business costs, which firms may attempt to pass on through higher prices, creating inflation. On the demand side, it destroys jobs, reducing consumer spending and therefore inflation. The net effect depends on which force dominates, but neither represents good policy design.
The Political Economy of False Claims
Why would anyone make such an obviously false claim? The answer lies in political convenience rather than economic reality. Governments of all stripes seek to claim credit for positive economic developments while deflecting blame for negative ones.
Labour inherited an economy where inflation was already falling due to factors completely outside their control. Energy prices had normalised. Supply chains had recovered. Bank of England rate rises were working through the system. They arrived as these trends were reaching fruition.
The temptation to claim credit for this fortunate timing is understandable from a political perspective. The problem is that it requires either ignorance of basic economics or deliberate dishonesty. It assumes the public will not notice the temporal impossibility of the claim or understand the transmission mechanisms of fiscal policy.
The Danger of Economic Illiteracy
When political supporters make economically illiterate claims on behalf of their preferred party, they undermine informed democratic debate. Citizens who believe the budget brought down inflation will misunderstand what economic policies can actually achieve and on what timescale. They will make poor voting decisions based on false causation. This benefits no one except cynical politicians.
The Actual Economic Record
With over a year of data since Labour’s October 2024 budget, we can now assess what actually happened and compare it to what was claimed.
What They Did
The October 2024 budget increased taxation on business through employer National Insurance while increasing public spending on health and education. It maintained fiscal rules around debt and borrowing. It made no significant changes to monetary policy, which remains the Bank of England’s independent responsibility.
What Actually Happened
Over the year following the budget, we have seen:
Significant increase in unemployment from 4.3% to 5.1%, with 327,000 more people unemployed
Businesses cutting employment in response to higher National Insurance costs
Inflation remaining relatively stable but now rising again to 2.5% in December 2024
Job vacancies falling to their lowest level since May 2021
Payrolled employment declining by 47,000 in December 2024 compared to November
These are the actual effects of the budget. The unemployment increase is particularly stark, confirming that the budget’s main near-term economic impact has been demand destruction through job losses, not clever inflation management.
The Stagflationary Risk
The most concerning aspect of the budget is not what it achieved, but what it risks. The combination of cost-push pressures from employment taxes and demand destruction from rising unemployment creates the conditions for stagflation, that toxic combination of stagnant growth and persistent inflation.
If businesses successfully pass on their increased National Insurance costs through higher prices while simultaneously cutting employment, we get the worst of both worlds. Inflation remains elevated while unemployment rises. This is the opposite of the claimed achievement.
Whether this risk materialises depends on factors including the degree of pricing power businesses possess, consumer resistance to price increases, and the overall state of demand in the economy. But it is a genuine risk that the budget has introduced, not removed.
Conclusion: The Evidence is Clear
More than a year after Labour’s October 2024 budget, the claim that it brought down inflation remains as false as it was when first made. It violates basic temporal logic. It misunderstands how fiscal policy transmits through the economy. It ignores the actual causes of inflation’s decline. And it disregards the actual consequence we have witnessed: a significant rise in unemployment.
The evidence is now overwhelming. Unemployment rose from 4.3% to 5.1% in the year following the budget. Over 300,000 more people are unemployed. Job vacancies have fallen to multi-year lows. Payrolled employment has declined. This is the budget’s actual legacy, not some imagined victory over inflation.
This matters because economic literacy is essential for democratic accountability. When political supporters make claims that collapse under basic examination, they undermine the quality of public debate. They make it harder for citizens to hold governments accountable for their actual policy effects.
If you support Labour’s budget, support it for what it actually does. Perhaps you believe increased public spending on health and education justifies higher business taxation and the resulting unemployment. Perhaps you think the distributional effects are fair. Those are legitimate political positions one can argue.
But do not claim the budget brought down inflation. That claim was demonstrably false when made, and a year of evidence has only made it more obviously so. It insults the intelligence of anyone with basic economic knowledge. And it creates a precedent where political debate detaches completely from verifiable reality.
We deserve better analysis. We deserve honest assessment of what policies actually achieve, on what timescale, through what mechanisms. We deserve recognition that inflation came down despite Labour’s budget, not because of it. It came down because of global forces that were already well advanced before Labour took office.
And we deserve acknowledgment that the budget’s actual effect, demonstrated clearly over the past year, has been rising unemployment and a weakening labour market. That is a cost worth debating honestly rather than a success to celebrate falsely.