Labour’s first budget in 15 years marked a sharp break with the recent past – or at least, it appeared to. Heralding significant increases in public spending over the next few years, matched with higher taxes and borrowing, this was not a budget as we have come to know them. But for all the hype, it’s unlikely to be enough to turn the country around. A far bigger, bolder shift was needed – one that properly acknowledged our worsening economic and environmental situation, the two being increasingly tangled together, and took the necessary first steps to address them: protecting the poorest, protecting real household incomes and taxing the wealthiest to pay for it.

Labour’s significant increase in the minimum wage is welcome, although it still falls short of the £15 an hour unions and campaigners have demanded. And Labour can, just about, claim it has ended austerity on its own terms. Their tragedy is that no one will notice. The boost in public spending over the next year amounts to 3.5% across all government departments, enough to end some immediate pressures, notably in the NHS whose winter crisis may now have its edge somewhat softened. But after 2026, spending increases fall away again. Although the £20bn of cuts planned by the Tories has been removed, increasing day-to-day spending by only 1.3% a year from 2026 onwards implies future reductions, relative to need, in spending on areas like prisons and local government.

Labour’s pledges on taxes – ruling out rises in income tax in particular – and its unwillingness to stand up to those lobbying for the wealthy have meant skipping over big, obvious, widely supported changes like equalising capital gains tax to income tax – making the tax on income from selling shares or art equal to that on income from paid work. Some of the taxation decisions made little sense as a result. Corporation tax, paid mainly by large corporations, was fixed at 25% – Reeves even boasted that this was the lowest rate in the G7. The chancellor also chose to raise employers’ national insurance contributions and even extend it to smaller businesses, raising a substantial £25bn. Even with some reliefs for small companies, this is not making the broadest shoulders bear the heaviest burden. A wealth tax, potentially raising £50bn or more, is nowhere to be found. The result is that Labour’s plans have been unnecessarily constrained.

It is worth underlining the scale of what is needed for public services relative to what Reeves pledged. The Centre for Progressive Policy (CPP) estimates that to maintain standards in our public services will need an extra £142bn a year by 2030. This huge sum is needed because of the huge repair bill left by austerity, and because our population is ageing and so needs more care. Labour is forecast to spend £70bn extra a year on average, or about half of what the CPP thinks is needed, with spending much higher in the next few years than at the end of parliament – precisely when pressures on public services will be rising.

And there are some unpleasant twists underneath the headline figures. Whilst some additional tax reliefs for those providing care are welcome, people in direct receipt of benefits will be worse off. So will all parents, with Labour doubling down on its deeply controversial two-child benefit cap. Reeves did announce a 1.7% increase in welfare payments due from next April – but the Bank of England forecast for inflation then is over 2%. Austerity, in the form of worsening real incomes and living standards, will very much continue for some of the poorest and most vulnerable.

Crucially, the budget does not directly address the decline and stagnation in living standards that most people in this country have suffered. Between the crash in 2008, the austerity imposed from 2010 onwards, Covid-19 and the post-Covid-19 surge in prices, living standards for most people in Britain have seen a worsening that is unprecedented in this country essentially since the early years of the Industrial Revolution.

Modelling by the Joseph Rowntree Foundation (JRF) using the figures supplied by the Office for Budget Responsibility (OBR) shows that real household incomes, after tax, are set to fall over the rest of parliament. The average household will be £770 worse off, taking account of inflation, in 2029 than today, as earnings growth slows down and price rises, especially in housing, bite. Labour’s decision not to move up the thresholds at which different income tax rates are paid is also digging into earnings. Inequality will worsen, with the poorest 10% seeing much bigger losses than the richest.

Even these forecasts for living standards are likely to be on the optimistic side, however. With climate change consistently driving up costs – for example through more frequent and extreme weather events damaging harvests – and with major corporations able to profiteer from those crises, we should expect inflation in the future to be typically higher than in the recent past. That means the squeeze on living standards, particularly in essentials like food and energy, will be worse than even Joseph Rowntree expects.

This prospect of continuing instability and worsening environmental and other shocks means that Labour has taken a very major risk in their spending decisions, not only with its own political prospects, but with the public realm itself. With 40% of the planned spending increases taken by the NHS, not that much is left for the rest of government. Local authorities, which get more than 90% of their funding from central government, will still be in deep trouble, with the Tories’ huge real-terms funding cuts not reversed. By putting most of the funding up-front, Labour has gambled that the economic picture will improve very substantially by the end of this parliament.

That’s not what the official forecasts say, however. The OBR predicts that Britain’s growth prospects will worsen over the next few years – so much for Reeves’ “growth budget”. The OBR’s methods are not the best, with economist Carsten Jung amongst the many questioning their figures, but having spent years talking up the OBR, Labour is hardly in a position to start criticising it now. Using the government’s own figures, Reeves’ growth budget is set to deliver lower growth.

This is the heart of the problem, as I wrote just before the budget. Economic growth is coming slowly to an end in countries like Britain. Like every other developed country, although admittedly more dysfunctional than most, Britain is a low-growth economy with an ageing population, facing a deeply uncertain future of climate change, resource shortages, and geopolitical instability. The Western consensus on managing capitalism, assembled after World War Two and lasting, despite many knocks, until at least the 2008 crisis, was built around the idea of relatively high growth providing rising living standards and supporting a substantial welfare state. Remove those conditions and that consensus breaks down. We have seen this partially after 2008 when low growth plagued much of the developed world – particularly Britain – and we should expect this to worsen into the future as climate change and resource depletion really bite.

We have an ageing population – which should be a good thing. It’s great that (until recently) people in this country are living longer, on average. But to deal with that means a significant rethink in how we approach the economy – centring on the provision of care, funded through redistributive taxation, rather than chasing the chimaera of growth. And every economy across the world faces worsening climate change. There’s no growth on a dead planet, and there’s not much on one that is dying.

Labour doesn’t think about its economic issues like this. Instead, the party is trying to crowbar somewhat traditional social democratic policies into an economy that can no longer accommodate them. Something has to give – or living standards, in the form of real incomes, will not improve much, and those public services will remain starved of the cash they need. We should be taxing the rich to fund public services, but fundamentally we should be changing how we think about the economy to focus on how to provide a good life for all, rather than pinning our hopes on future growth that almost certainly won’t happen.