Rachel Reeves was on Wednesday gambling tens of billions of pounds in higher taxes and borrowing in Labour’s Budget to ‘rebuild Britain’.
Less than four months into Government, the Chancellor was due to unveil her first Budget which has already sparked a huge debate over her tax, borrow and spend blueprint.
She was expected to be seeking a package of £40 billion of tax rises and some Whitehall departmental spending cuts.
She has also eased her debt fiscal rule which will allow her to borrow some £20 billion more.
The Chancellor argues that the drastic action is needed to fix what she claims is a £22 billion black hole in the public finances left by the Tories, which they deny, and then embark on a huge investment programme.
This would include billions for transport and other infrastructure projects, including the HS2 high speed rail line running to Euston, as well as pouring billions more into day-to-day running costs for the Government’s priorities such as the NHS and cutting waiting lists, currently at around 7.6 million, by millions within years.
“It falls to this Labour Party, this Labour government, to rebuild Britain once again,” the Chancellor was set to say in her Budget speech, the first from Labour in 14 years.
“The only way to drive economic growth is to invest, invest, invest,” she was due to argue.
“There are no shortcuts. To deliver that investment we must restore economic stability.”
London, and the wider nation, has been braced for some hefty tax rises, with Sir Keir Starmer warning that “those with the broadest shoulders” would be expected to meet the heaviest burden.
Despite Labour making economic growth its No1 priority, businesses are set to be hit with a whopping increase in National Insurance for employers, with speculation that it could be a high as £20 billion, on top of a £5 billion to £7 billion bill to meet the cost of the higher the minimum wage, now known as the national living wage.
📢Some important background info for those reading the Chancellor’s budget tomorrow –
— Helen Miller (@HelenMiller_IFS) October 29, 2024
If she increases employer NICs, it will raise a lot less revenue than appears on the scorecard – i.e. the overall tax rise will be much smaller than first appears
This is because …
But Helen Miller, of the Institute for Fiscal Studies, tweeted: “If she increases employer NICs, it will raise a lot less revenue than appears on the scorecard – i.e. the overall tax rise will be much smaller than first appears.
“There’s speculation about a potential £20bn rise in employers NICs … but in reality, £20bn on the scorecard would mean something closer to half of that in the treasury coffers.
“The scorecard will not account for the fact that higher employer NICs MUST lower some other tax bases – e.g. lowering firms’ profits or workers’ wages.”
An overall tax hike of £40 billion, according to the IFS, would be equivalent to 1.25 per cent of economic output, surpassed in recent history only in 1993 by Conservative budget plans which raised taxes to shore up the public finances after a recession and currency crisis.
Ms Reeves has insisted that she will put “more pounds in people’s pockets”.
However, she was also expected to freeze the thresholds for paying income tax for another two years beyond 2027/28, raise capital gains tax, inheritance tax, and make changes to stamp duty and non-dom levies.
The City was awaiting the Budget with anticipation, and there were some signs of anxiety, but far from the scale of that after the disastrous “mini Budget” in autumn 2022 by Kwasi Kwarteng and Liz Truss.
The new Government promised voters it would cut long waiting lists, build more housing and improve schools.
Labour MPs say it is vital that the party delivers on its key election pledges.
But the Government has already been accused of breaking its manifesto promises on tax, which was to not increase the rate of income tax, National Insurance or VAT, which it has caveated as applying to “working people”.
The Conservatives have also continued to protest against the decision to limit the winter fuel allowance to all but the poorest pensioners.
Shadow work and pensions secretary Mel Stride stressed that a petition calling on the Government to think again has "over a quarter of a million signatures", adding "many" pensioners are going to "really, really struggle".
Polling firm Savanta said its measure of business optimism, like recent consumer confidence surveys, hit its lowest in October since Labour won power in July.
“Keir Starmer and Rachel Reeves will likely be concerned how quickly years of goodwill among businesses appears to have dissipated,” said Matt McGinn, a consultant at Savanta.
