Rachel Reeves will deliver her second budget on 26th November, facing a serious dilemma of her own making. By adopting two strict fiscal rules that limit government spending without tax rises, and simultaneously pledging not to increase taxes on working people during this parliament, Reeves has boxed herself into a narrow and politically dangerous corner.

When Labour secured its landslide majority in July 2024, Reeves’ stance appeared shrewd. It reassured markets and the media that Labour would be fiscally responsible. Yet, the Conservatives, fully aware of Reeves’ self-imposed constraints, arguably set a trap before leaving office—one that left a large gap between expected government spending and projected tax revenues. As a result, Reeves now faces an unpalatable choice: cut spending, break her own fiscal rules, or raise taxes.

Reeves’ predicament stems from her belief that a government budget is no different from a household budget. In her view, if a household spends more than it earns, it must borrow; likewise, if government spending exceeds revenue, it must also borrow—adding to the national debt, which she considers inherently undesirable.

But this analogy is deeply flawed. The UK government is not a household. A household uses money; the government creates it. The government’s constraint is not financial but real—it depends on the availability of resources such as labour and materials, not on the balance of its bank account. This misunderstanding is not unique to Reeves; even much of the left accepts the notion that governments must “balance the books,” differing only over where to make cuts rather than questioning the premise itself.

Recently, however, there are signs that this orthodoxy is being challenged. At Jeremy Corbyn’s Peace and Justice Project’s annual conference, two economists—Steve Keen and Stephanie Kelton—set out to dismantle Reeves’ core assumption. Keen explained why a sovereign government’s finances are fundamentally distinct from those of a household, while Kelton, author of The Deficit Myth, reiterated her argument that deficits should be understood not as moral failings but as policy tools.

During Jeremy Corbyn’s tenure as Labour leader, his shadow chancellor John McDonnell accepted the household analogy and even introduced his own fiscal rules—less rigid than Reeves’, but still constraining. By contrast, Corbyn’s renewed activism and his questioning of these assumptions signal a deeper break with the conventional economic thinking that has dominated British politics since the Thatcher era.

This line of critique has also surfaced beyond Corbyn’s circle. In a recent discussion with economist Richard Murphy, new Green Party leader Zac Polanski invoked Keynes’ principle that “anything that can be done can be paid for.” The message is clear: the true limits on government action are not financial but productive—whether the economy has the capacity, in workers and resources, to achieve its goals.

The emerging Corbyn–Sultana political movement, already boasting over 700,000 members, could choose to build on this challenge. Whether it will directly confront Reeves’ assumptions remains to be seen. Yet doing so could be politically transformative.

As Abba Lerner—Keynes’ most perceptive student—wrote in his 1943 paper ‘Functional Finance and the Federal Debt’:

“Government fiscal policy… should be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound or unsound.”

Lerner’s point was simple: government spending and taxation should aim to maintain full employment and price stability, not to satisfy arbitrary fiscal targets. If spending exceeds taxes, the government can borrow or issue money; if the reverse occurs, it can retire debt. There is nothing inherently “good” or “bad” about either outcome.

Reeves’ adherence to “sound finance” dogma has already had real consequences—for instance, cutting the universal winter fuel allowance for many pensioners. Such decisions may please fiscal conservatives but risk alienating voters who expected change. If her upcoming budget continues in this vein, it could well be her last. Keir Starmer cannot afford a chancellor whose policies undermine Labour’s electoral prospects in 2029.

Whether Corbyn, Polanski, and others continue to challenge the household analogy may prove pivotal. It was, after all, central to Thatcher’s project of shrinking the state. Rejecting that myth could allow a new generation of progressives to draw a clear line between themselves and both the old establishment parties—Labour and Conservative— and the populist right. For Britain’s political future, that distinction may prove essential.