Rachel Reeves fueled fears over a VAT raid today as she hinted the Budget could see tax rises and spending cuts.
The Chancellor said she had made a ‘solemn promise’ to stabilise the finances as she dodged on how she plans to fill an estimated £30billion gap in the government’s books.
Speculation has been mounting that Ms Reeves could have to break Labour’s election manifesto, which pledged no increases to income tax, employee national insurance or VAT.
Touring broadcast studios at party conference in Liverpool this morning ahead of her keynote speech, Ms Reeves repeatedly used the formulation that she ‘stands by those commitments’ without giving specific guarantees.
Some believe the government could expand VAT to areas such as taxi fares, rather than increasing the main rate.
‘There are global headwinds at the moment, we can see that the world has changed hugely since the last election,’ she told Sky News.
‘But those manifesto commitments we made in the manifesto 15 months ago, those manifesto commitments stand.’
Pressed on whether a VAT rise would count as a tax rise on working people, Ms Reeves said: ‘That (VAT) was part of our manifesto pledges. Because if we are talking about living standards the prices in the shops are obviously crucial to people’s living standards.’
The Chancellor insisted she had not yet received forecasts from the Treasury’s OBR watchdog.
Asked if taxes would have to bear the burden of filling any black hole in the finances, Ms Reeves said she would bring forward ‘a combination of changes, if needed, to tax and spending’.
Labour has already been accused of breaking its manifesto once by increasing national insurance for employers – although ministers argue they only said they would protect workers.
The extra costs for business have been blamed for slowing down the economy and staff recruitment.
Keir Starmer sparked concern about VAT yesterday after seeming to choose his words carefully during a BBC interview.
He insisted the manifesto ‘stands’ rather than giving any specific assurances.
Ms Reeves also signalled she wants the OBR to do one set of forecasts a year instead of two – something the watchdog has suggested it will resist.
She told Times Radio: ‘The International Monetary Fund (IMF) have said that we should move to just one major fiscal event a year, and I agree with their recommendations, and to be able to do that, we do need to change the way that the OBR do their forecasting.
‘Two full forecasts a year make it harder to have that one fiscal event. There are different ways you could do it, you could do a shorter term forecast, you could do a forecast that just looks at the changes in the economy over that period of time.’
She added: ‘We’ve already moved to having just one budget a year, but we’re trying through these changes to facilitate that.’
The stalling economy, productivity downgrades and rising interest rates have left the Chancellor with a black hole estimated at £30billion to fill.
But businesses have been voicing alarm at the prospect of more eye-watering tax hikes, with warnings they could plunge the country into a ‘doom loop’.
Unite is expected to try to force a vote on a ‘wealth tax’ at conference – threatening to cut ties with the party unless the Budget shows a ‘direction change’.
