Reeves says Budget will be ‘fair’ as tax rise speculation mounts
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Diverging Reports Breakdown
Income tax fears rise as Rachel Reeves gives clear sign she will break Labour manifesto pledge
Reeves warns that higher taxes are likely due to the UK’s weak public finances. A £20 billion shortfall in forecasts from the Office for Budget Responsibility has forced Reeves to consider significant tax rises.
• Reeves pledged that her Budget will be “fair,” prioritising reducing NHS waiting lists, tackling the cost of living, and cutting national debt, while protecting those on modest incomes.
• A £20 billion shortfall in forecasts from the Office for Budget Responsibility—blamed partly on Brexit and the financial crisis—has forced Reeves to consider significant tax rises to rebuild fiscal “headroom.”
Reeves says Budget will be ‘fair’ as tax rises expected
Budget will be ‘fair’ says Reeves as tax rises expected. Tax rises could mean reversing a core election manifesto pledge of not raising VAT, National Insurance or income tax. Shadow chancellor Sir Mel Stride dubbed it an “emergency press conference”, adding “higher taxes are on the way” and called for Reeves to be sacked if she “breaks her promises yet again” It comes as the Resolution Foundation, which has close links to Labour, said avoiding changes to VAT, NI and income tax “would do more harm than good” Hiking income tax would be the “best option” for raising cash, it said, but suggested it should be offset by a 2p cut to employee national insurance. Extending the freeze in personal tax thresholds for two more years beyond April 2028 would also raise £7.5 billion, its pre-Budget analysis suggested. That could add as much as £20bn to the amount the chancellor will need to find if she is to meet her self-imposed “non-negotiable” rules.
10 minutes ago Share Save Jennifer Meierhans, Business reporter and Henry Zeffman, Chief political correspondent Share Save
PA Media Tax rises could mean reversing a core election manifesto pledge of not raising VAT, National Insurance or income tax
Chancellor Rachel Reeves has said she will make “necessary choices” in the Budget after the “world has thrown more challenges our way”. Her Downing Street speech did not rule out a U-turn on Labour’s general election manifesto pledge not to hike income tax, VAT or National Insurance. When journalists explicitly asked if the government was set to break that pledge she did not answer directly but said she was “setting the context for the Budget”. Ahead of the speech, shadow chancellor Sir Mel Stride dubbed it an “emergency press conference”, adding “higher taxes are on the way” and called for Reeves to be sacked if she “breaks her promises yet again”.
If there was any doubt about tax rises before this speech, there isn’t now. Yet Reeves repeatedly refused to get into the specifics of which taxes might go up. Instead she began the work of explaining why a year after delivering a tax-raising Budget and vowing not to come back for more, she is in fact coming back for more. The chancellor said she would do what is necessary, not what is popular. The reasons she gave were poor productivity, for which she blamed Conservative government policy including Brexit, austerity and short-sighted decisions to cut infrastructure spending, persistently high global inflation and the uncertainty unleashed by Donald Trump’s tariffs. In short, Reeves’ argument is that the failings of others are being visited upon this government, and that it falls to her to confront decisions her predecessors ducked. She pledged to come up with a “Budget for growth with fairness at its heart” aimed at bringing down NHS waiting lists, the national debt and the cost of living. “It is important that people understand the circumstances we are facing, the principles guiding my choices – and why I believe they will be the right choices for the country,” she said.
There are some in government who want this to be a one-and-done Budget, in that they do not want to come back again and again every year, eking out a bit more money in tax to meet the requirements of the independent forecast. That is seen as an argument for raising billions of pounds through increasing at least one of the income tax rates. However, no chancellor has increased the basic rate in 50 years and it would be a big risk politically, especially with public trust in politics in general, and Prime Minister Sir Keir Starmer in particular, so low. There is also the question of whether the prime minister and chancellor could land the argument that none of this was foreseeable before last year’s Budget. The message from Reeves echoed comments made by Sir Keir to a group of Labour MPs on Monday night. He told those gathered that the Budget would be “a Labour Budget built on Labour values” and that the government would “make the tough but fair decisions to renew our country and build it for the long term”. It comes as the Resolution Foundation, which has close links to Labour and was previously run by Treasury minister Torsten Bell, said avoiding changes to VAT, NI or income tax “would do more harm than good”. Hiking income tax would be the “best option” for raising cash, it said, but suggested it should be offset by a 2p cut to employee national insurance, which would “raise £6 billion overall while protecting most workers from this tax rise”. Extending the freeze in personal tax thresholds for two more years beyond April 2028 would also raise £7.5 billion, its pre-Budget analysis suggested.
The government’s official forecaster, the Office for Budget Responsibility (OBR), is widely expected to downgrade its productivity forecasts for the UK at the end of the month. That could add as much as £20bn to the amount the chancellor will need to find if she is to meet her self-imposed “non-negotiable” rules for government finances. The two main rules are: Not to borrow to fund day-to-day public spending by the end of this parliament To get government debt falling as a share of national income by the end of this parliament The Treasury declined to comment on “speculation” ahead of the OBR’s final forecast, which will be published on 26 November alongside the Budget. However, the chancellor confirmed last week that both tax rises and spending cuts are options as she aims to give herself “sufficient headroom” against future economic shocks. Reeves said in her speech on Tuesday that her commitment to her fiscal rules was “iron-clad”.
Rachel Reeves refuses to rule out tax rises in November’s budget
Tory leader Ed Miliband says the party will make tough decisions on tax and spending. Labour has pledged not to raise taxes on the wealthy or raise corporation tax. But the party is expected to raise the minimum wage to £10.50 an hour by 2017-18. Labour says it wants to cut corporation tax to £7.25 an hour from the current £8.75 an hour. It also wants to introduce a minimum wage of £5.50 per hour for women and £3.50 for men. The party has pledged to cut the public sector budget by £1.5billion over the next five years. It has also pledged to make a £1billion cut in corporation tax, which is currently £2.4billion a year, to £2billion. The cuts will be paid for by raising the rate of tax on the rich, which has been frozen since the 1980s. The government has also promised to cut public sector pay by 20 per cent, but this is likely to be delayed until 2018.
In a speech from Downing Street on Tuesday, the chancellor said she will “make the choices necessary to deliver strong foundations for our economy” for “years to come.”
Ahead of her speech, No 10 repeatedly refused to reaffirm Labour’s manifesto pledges, fuelling speculation that its promise not to raise income tax and other key taxes could be dropped.
Reeves laid out three key priorities of cutting national debt, easing the cost of living and protecting the NHS, adding: “It will be a budget led by this government’s values, of fairness and opportunity and focused squarely on the priorities of the British people.
“You will all have heard a lot of speculation about the choices I will make. I understand that these are important choices that will shape our economy for years to come.
“But it is important that people understand the circumstances we are facing, the principles guiding my choices – and why I believe they will be the right choices for the country.”
The speech is intended to prepare the ground for a tough autumn statement on November 26, when the chancellor is widely expected to raise taxes to balance the books in the face of weak growth and high borrowing costs.
Economists at the Institute for Fiscal Studies have estimated that Reeves will need to find £22 billion to restore the £10 billion of headroom she previously allowed herself under her own debt rules.
A sharper-than-expected fall in productivity could push that figure even higher, although easing inflation and slightly improved growth forecasts may offer some relief.
It comes as reports say that Reeves is considering a proposal from the Resolution Foundation, a think tank with close ties to the Treasury, to raise income tax by 2p in the pound while cutting national insurance by the same amount.
The foundation framed the measure as a “switch” plan that would help to iron out “unfairness” in the system by spreading the tax burden across a wider group, including pensioners and landlords.
The move would represent a clear breach of Labour’s election manifesto pledge not to raise income tax, VAT or national insurance for “working people,” a commitment the government has notably declined to say still stands in recent days.
Speaking on Tuesday, the chancellor 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.”
Prime Minister Keir Starmer warned of “tough but fair” decisions to come in the statement this month as he addressed MPs at a meeting of the Parliamentary Labour Party in Westminster on Monday night.
And he indicated the budget would avoid deep cuts to public spending as a way to raise revenue, accusing the Tories and Reform of planning to “return us to austerity”.
“It’s becoming clearer that the long-term impact of Tory austerity, their botched Brexit deal and the pandemic on Britain’s productivity is worse than even we feared,” he warned the party.
“Faced with that, we will make the tough but fair decisions to renew our country and build it for the long term. A Labour government making Labour choices.
“The Tories and Reform would return us to austerity.”
The prime minister said his political opponents would return the UK to austerity Credit: Lucy North/PA
He claimed Nigel Farage’s party was planning “massive spending cuts” rather than “taking the hard and serious decisions needed to renew this country.”
Asked on Monday whether the budget would leave that pledge intact, the prime minister’s official spokesperson said the chancellor would “strike the right balance” between funding public services and encouraging growth.
“I think what we’ve said is that the choices we’ll take at the budget will be led by our values and our determination to build a fairer economy that works for working people and rewards working people,” Downing Street said.
“We will maintain a tight grip on public spending to keep taxes, inflation and interest rates as low as possible.
“We will take the tough but fair choices on tax so everyone, including businesses and the wealthiest, contributes their share to fund our public services.”
Meanwhile, the chancellor’s task of balancing the books has become more challenging after a backbench rebellion earlier this year, which resulted in the government rowing back on planned welfare cuts of up to £5 billion.
Conservative Party leader Kemi Badenoch is expected to step up her attacks against Labour over its welfare U-turn ahead of the budget. Credit: Jacob King/PA
Kemi Badenoch is expected to intensify her attacks over the U-turn in a speech on Tuesday, claiming “Britain has stopped working” and accusing Labour of having “given up” on lowering the benefits bill.
“Britain has stopped working, because it has stopped making sense to work,” Badenoch is expected to say.
“Far from solving this, Labour seem intent on making it worse.”
She will claim the government’s workers’ rights bill is “not fit for purpose,” adding: “It needs a fundamental rethink and overhaul. The only responsible action left for the government is to shelve it in its entirety and start from scratch.
“So ahead of the budget later this month, Rachel Reeves should demand the government withdraws the Employment Rights Bill altogether – before it becomes Labour’s Unemployment Act.”
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Shadow chancellor Mel Stride said Starmer should sack the chancellor if she hikes taxes, having said last year she would not be “coming back” for “more taxes” after delivering what she called a “once in a parliament” reset at the last budget.
“It has taken Rachel Reeves more than a year to admit her first budget was a failure. Now, with an emergency press conference, she is all but confirming what many feared – higher taxes are on the way,” he said.
“If Rachel Reeves breaks her promises yet again, Keir Starmer must take responsibility and sack her. The country needs a chancellor with a plan and a backbone.”
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