Rachel Reeves laid the ground for a manifesto-smashing Budget tax raid today – and insisted it will be everyone else’s fault.
The Chancellor talked up the need to ‘invest’ as she took the highly unusual step of teeing up her fiscal package with a speech in Downing Street.
She stressed international headwinds and rising costs of servicing the debt mountain – but squarely blamed Brexit and Tory austerity, suggesting ‘longer-term factors’ meant the economy ‘is not working as it should’.
In a blatant softening up exercise ahead of her announcements on November 26, Ms Reeves said there is a ‘clear choice’ between ‘investment and hope, or cuts and division’. Ominously hinting at broad tax increases, she warned that ‘we will all have to contribute’ to getting the country back on track.
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‘There has been a lot speculation about the choices that I will make, I understand that,’ she said.
‘These are important choices that will shape the future of our country for years to come. I want people to understand the circumstances we are facing, the principles guiding my choices, and why I believe they will be the right choices.’
Ms Reeves said she would do ‘what is right’ rather than ‘popular’ and prioritise ‘protecting our NHS, reducing our national debt, and improving the cost of living’.
‘Any Chancellor of any party would be standing here facing the choices that I face,’ she insisted.
The intervention effectively confirms that Brits face another brutal raid, with the black hole in the public finances estimated at between £20billion and £50billion.
Ms Reeves admitted the consequences of her actions – potentially including increases to income tax, council tax and pain for the ‘wealthy’ will be felt for ‘years’.
Standing in front of a podium with the slogan ‘strong foundations, secure future’, Ms Reeves said there were no ‘easy answers’. She warned that markets could be even more negative about lending to the UK if they did not believe her commitment to meeting her fiscal rules.
But it is barely a year since the Chancellor claimed her first Budget – the biggest tax-raiser on record – had ‘wiped the slate clean’.
‘I’m really clear. I’m not coming back with more borrowing or more taxes,’ she told the CBI last November.
Chancellor Rachel Reeves will make the highly unusual move of teeing up her fiscal package with a speech in Downing Street
The tax burden is already heading towards a post-war high even before the new raid
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Ms Reeves told reporters in Downing Street: ‘The continual threat of tariffs has dragged on global confidence, deterring business investment and dampening growth.
‘Inflation has been too slow to come down, as supply chains continue to be volatile, meaning the costs of everyday essentials remain too high.
‘And the cost of government borrowing has increased around the world, a shift that Britain, with our high levels of debt left by the previous government, has been particularly exposed to.’
Ms Reeves said: ‘As I take my decisions on both tax and spend, I will do what is necessary to protect families from high inflation and interest rates, to protect our public services from a return to austerity and to ensure that the economy that we hand down to future generations is secure with debt under control.
‘If we are to build the future of Britain together, we will all have to contribute to that effort.
‘Each of us must do our bit for the security of our country and the brightness of its future.
‘There is a reward for getting these decisions right, to build more resilient public finances with the headroom to withstand global turbulence, giving business the confidence to invest and leaving government freer to act when the situation calls for it, to continue to invest in our infrastructure and our industry to build a stronger economy and to get the cost of borrowing down, spending less on debt interest and more on schools and on our health service.’
Keir Starmer warned Labour MPs last night that the Budget would involve ‘hard and serious decisions’ but insisted they would be ‘fair’.
Ms Reeves has been hiding from the media since the Daily Mail revealed last week that she broke the law by failing to obtain the licence needed to rent out her family home.
Despite the parlous state of the economy, Ms Reeves will rule out spending restraint, arguing that further ‘investment’ is needed to boost the economy and prop up public services.
No10 refused to say whether Labour’s manifesto pledge to not increase income tax, VAT or National Insurance still stands.
Ms Reeves is considering a proposal from the Left-wing Resolution Foundation to raise income tax by 2p, in what would be the first increase in the basic rate for 50 years.
The move could be partially offset by a 2p cut in National Insurance but would still raise an extra £6billion a year from pensioners and others.
If Ms Reeves targets income tax it will be the first time in 50 years the rate has been increased.
She is also looking to extend the six-year freeze on tax thresholds, dragging millions more into higher tax bands – despite previously warning the move would break Labour’s manifesto pledge.
Treasury officials are said to have been ordered to find ways of getting more money out of everyone with incomes of more than £45,000 a year.
Insiders claim that only Brits below that threshold – the bottom two-thirds of earners – are being defined as ‘working people’ to receive protection from Labour’s tax assault.
That effectively brands the top third of earners as ‘wealthy’ – encompassing jobs such as HGV drivers, teachers and head chefs at the Wagamama restaurant chain.
Sources have confirmed that bigger property taxes are on the radar.
The Chancellor is said to be looking at dramatically hiking council tax for the top bands, which could affect over a million families.
That could mean an eye-watering rise from £3,800 to £7,600 for residents of a band G household in England – and from £4,560 a year to £9,120 for those in band H.
Rachel Reeves laid the ground for Labour to smash its manifesto pledges on tax today – saying she will take the ‘choices necessary’ at the Budget. The Chancellor talked up the need to ‘invest’ as she took the highly unusual step of teeing up her fiscal package with a speech in Downing Street
But the intervention has ramped up fears that Brits face another brutal raid, with the black hole in the public finances estimated at between £20billion and £50billion
The move would hammer London and the South East, where property prices are higher. Critics warned it would spark a crisis for pensioners on fixed incomes and families who have stretched themselves to afford a dream home.
Capital gains, pension reliefs, inheritance tax and partnership structures have also been listed among the ways Labour could seek to raise funds.
Final decisions are unlikely to be made for another week or so, when the OBR will start factoring the government’s plans into its draft forecasts.
The Resolution Foundation – former home to a string of ministers and advisers drawing up the Budget – said today that tax rises are ‘inevitable’ and will probably total around £26billion.
Ms Reeves has already delivered the biggest tax-raising Budget on record last year, soaking Brits for £41billion.
Economists have warned this package might be on the same scale, and could have devastating impacts on growth.
Even a far smaller raid would leave Ms Reeves having announced bigger tax hikes in 16 months than Gordon Brown did over a decade.
Labour Party pictured in June 2024 when they launched their general election manifesto
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After raising a record £40billion in tax at last year’s Budget, Ms Reeves said she had ‘wiped the slate clean’.
Following a business backlash, she told the CBI last November: ‘I’m really clear. I’m not coming back with more borrowing or more taxes.’
But low growth and higher government borrowing costs have triggered a deterioration in the public finances.
The Conservatives have urged the PM to sack his Chancellor if she breaks Labour’s tax pledges to the country.
