Rachel Reeves has hinted Brits will face even more taxes to fund a boost to defence spending.
The Chancellor gave the grim signal as frantic wrangling continues in Whitehall over how to pay for bolstering the country’s military.
Keir Starmer is desperate to get the long-awaited Defence Investment Plan out, but suggested at PMQs that it will not come tomorrow as hoped. Instead he merely committed to releasing the blueprint before the Nato summit on July 7.
The latest embarrassing delay comes as the Treasury plays hardball over how much money can be allocated.
As well as a multi-billion pound shortfall in existing budgets, there are disagreements over how and when targets for increasing spending can be reached.
The Government’s room for manoeuvre is limited after a revolt last year torpedoed efforts to curb spiralling sickness benefits.
It emerged last week that Work and Pensions Secretary Pat McFadden privately complained that Labour MPs only cared about who they can ‘tax in order to pay benefits to others’.
Rachel Reeves has hinted Brits will face even more taxes to fund a boost to defence spending
Departments are thought to have been asked to stump up an average of 1 per cent of their capital budgets to help raise £6billion towards the cost of the DIP.
The raid could hit school and hospital programmes as well as delaying transport infrastructure projects.
But Ms Reeves has been making clear that savings elsewhere are unlikely to be enough.
Speaking at a conference in the City yesterday, the Chancellor said her Budget ‘headroom’ would not cover all the extra spending.
She added: ‘The first duty of government is to keep its people safe.
‘In the world in which we live today it’s increasingly clear that us and other European countries are going to have to spend more on defence but crucially spend that money better.
‘That should have a boost for our defence industry.
‘But the money has to come from somewhere and borrowing cannot always be the answer.’
She said ‘getting a grip’ on public finances had meant interest rates have been able to come down.
Ms Reeves added: ‘It is bearing results but I would argue that despite the pain of higher taxes, better to do that than to get into a situation that we were in before that we had interest rates climbing and the risk premium for the UK climbing too.’
The announcement, when it comes, will be accompanied by an increase in defence spending of around £15billion, bargained down from an initial £18billion by the Treasury.
Ms Reeves has already pushed the tax burden towards a never-before seen peak, but there are concerns that a Labour lurch to the Left could spark another spending splurge and drive up borrowing costs.
There are signs of a developing ‘bidding war’ between rivals hoping to wrestle the keys to Downing Street from Sir Keir.
Contenders have been talking up the prospect of ‘wealth’ taxes, while Andy Burnham has mooted a ‘land value’ tax and revaluing council tax.
In under two years the Chancellor has imposed measures raising an extra £75billion annually.
The staggering tally makes her the biggest tax-raising Chancellor in the last six decades, far ahead of her nearest competitor for the dubious distinction.
There are signs of a developing ‘bidding war’ between rivals hoping to wrestle the keys to Downing Street from Keir Starmer
That was fellow Labour politician Gordon Brown, whose fiscal statements added up to an extra £62.1billion.
The Treasury’s OBR watchdog forecast in March that the tax burden will reach a never-before seen mark of 38.5 per cent of GDP in 2030-31.
That was even higher than the 38.3 per cent envisaged before.
The watchdog has raised concerns the Government is relying on a small base of better-off taxpayers for the bulk of revenues, while the ‘stealth raid’ of freezing earnings thresholds is very sensitive to changes in inflation and earnings.
Touring broadcast studios for the Government this morning, Labour Party chair Anna Turley did not deny taxes will have to rise again.
‘The defence review and spending plan is going to be published imminently in the next few days, I understand,’ she told GB News.
‘So we’ll see there our commitment that we have agreed to raise defence spending to meet our NATO commitments, and that is going to happen.
‘Those discussions are taking place, of course, how that’s to be paid for.
‘We are in a situation where the world is extremely insecure. It’s the most volatile that it’s been for decades, and it’s absolutely vital that we get this right. We have put more money into defence spending since the Cold War under this government.
‘We’ve taken it extremely seriously. We’ve got to make sure that we look at every means possible to protect the country, to keep our citizens safe, and the Defence Spending Review will set that out shortly.’
Pressed whether welfare spending should be cut to avoid tax rises, Ms Turley said: ‘We’ve been very clear that we are making sure we’re determined to get, particularly young people, back into work and reduce the numbers of people who are unemployed.
‘But actually, when you look at the welfare bill in its entirety, a huge amount of that is going on things like public pensions, on housing.
‘Of course, we need to look at every aspect of government spending, but there are very difficult decisions to be made across the board in every department, and I know the Chancellor is having those conversations right now with colleagues around the table.’
