Rachel Reeves is poised to inflict the highest taxes ever on Britain – as a poll showed the public would rather she slashed spending.
Records going back more than 300 years lay bare the inexorable expansion of the state – and how the Chancellor could take the burden to a new peak.
In March the Treasury’s OBR watchdog forecast that tax as a proportion of GDP would rise to 37.7 per cent in 2027-28, before falling back slightly.
However, Ms Reeves effectively confirmed yesterday that the Budget on November 26 will push taxes up again. Some believe that she could need a package on the same scale as last year, which raised more than £40billion.
That would potentially leave the burden close to 39 per cent of GDP by the end of the decade. Although methodology has changed over time and forecasts will be updated this month, the OBR’s historical figures suggest that level has never been seen before.
Ms Reeves broke with convention by teeing up her Budget in an early-morning Downing Street speech yesterday.
She made clear she is considering taking the country back to the 1970s by imposing the first increase in the basic rate of income tax since her Labour predecessor Denis Healey.
Ms Reeves insisted ‘we will all have to contribute’ to closing the gap, reeling off a laundry list of factors to blame – including Brexit, the Tories, Covid, the Ukraine war and President Trump’s tariffs.
Such a move would be a blatant breach of Labour’s manifesto pledge to not raise income tax, National Insurance or VAT – and triggered Tory calls for her to be sacked.
But Ms Reeves said she was ‘not going to walk away because the situation is difficult’.
In other grim developments today:
- There are claims Ms Reeves will wage war on motorists by scrapping the 5p relief on fuel duty;
- A YouGov poll found the public prefer spending cuts over tax rises as a way to improve the public finances, by a margin of 43 per cent to 31 per cent;
- A leading think-tank has warned that Ms Reeves might need to raise £60billion at the Budget, even more than other estimates;
- Labour benches are deeply nervous about the Budget moves, with left-wingers demanding only the ‘wealthy’ face higher taxes.
Speaking in the Downing Street media suite yesterday, the Chancellor hinted at broad based tax rises affecting millions of people, saying ‘each of us must do our bit’.
She added: ‘If we are to build the future of Britain together, we will all have to contribute to that effort.’
Ms Reeves acknowledged there was a ‘different route through’ available by cutting spending instead of raising taxes. But she rejected the idea, saying: ‘The reason we have such low productivity is because governments have done that for the last 14 years.’
Asked whether she believed it was important to keep Labour’s manifesto promises on tax, she responded: ‘It’s important that people are honest. Everyone can see this year has thrown many more challenges our way.’
Ms Reeves later denied that she would have to resign if she breaks the Labour manifesto.
A National Institute of Economic and Social Research (NIESR) report today suggested the Chancellor might be facing a £20billion to £30billion black hole.
On top of that, she should build up ‘headroom’ of £30billion to try to bring debt down and provide a financial buffer in the event of future economic shocks.
Without a credible plan to repair the public finances, Ms Reeves could be in danger of facing a ‘Liz Truss moment’ – a bond market sell-off reminiscent of the aftermath of the mini-Budget of 2022, the think-tank warned.
NIESR said the scale of the money needed could mean an increase to the basic rate of income tax of 20p by a further 2p in the pound, raising £20billion, and a 5p to 10p increase to the higher rate of 40p, with 5p raising £10billion.
A potential 5p more in the ‘additional rate’ band – which is charged at 45p in the pound on incomes over £125,140 – would raise £500million.
But there were warnings – including from the Tony Blair Institute (TBI) – that tax increases threatened to send Britain into a ‘doom loop’.
The worry is that higher taxes hurt growth, which hits the public finances and means taxes have to go up yet again.
