The new Chancellor, Rachel Reeves, has just delivered Labour’s first budget since 2010, announcing a slew of measures aimed at raising a staggering £40 billion of additional tax revenue.
The biggest single tranche of this money coming from businesses who will see National Insurance rates rise to 15 per cent from April and will now be levied on all salaries above £5,000 instead of £9,100. The Government believes that this will raise around £25 billion.
Other tax increases will see the basic rate capital gains tax on profits from selling shares increasing from 10 per cent to 18 per cent for basic rate tax payers and from 20 per cent to 24 per cent for higher rate payers.
The inheritance tax threshold will be frozen by a further two years to 2030, with unspent pension pots also subject to the tax from 2027, while exemptions when inheriting families businesses and farmland will also be made less generous from 2026.
The Chancellor announced increases in taxes on alcohol, although draught products such as a pint of beer will see a small reduction, an inflation plus two per cent on cigarettes, a 10 per cent increase on hand rolling tobacco and a new vaping liquid tax of £2.20 per 10ml.
She confirmed changes to taxes paid by nom-doms and VAT on private school fees.
Alongside the tax rises, the chancellor confirmed a massive injection of cash into the NHS, of £22.6 billion and 10s of billions of pounds in additional borrowing to be spent on roads, rail and other infrastructure. The extra borrowing will be made possible by new treasury rules which take into account both liabilities and assets.
Reeves told Parliament that the budget was a “moment of fundamental choice for Britain” and that she had “made my choices”.
“The choices that I have made today are the right choices for our country to restore stability to our public finances, to protect working people, to fix our NHS and to rebuild Britain,” she said. Adding, “That doesn’t mean these choices are easy, but they are responsible.”
The chancellor also told the Commons that the additional investment in her budget would lead to a 1.4 per cent increase to GDP.
However, the Office for Budget Responsibility (OBR), the fiscal watchdog, said it would take 50 years for this growth to be realised and the accompanying assessment of the budget’s impact on the UK economy, downgraded its growth forecasts for later in the parliament. They said that increased public spending would “crowd out” private investment while tax rises on businesses would hit profits and wages, adding that interest rates would rise by 0.25 percentage points and inflation by 0.4 points decision made in the budget.
The budget was welcomed by Luke Raikes, Acting General Secretary of the Fabian Society described the package of measures as what “the country needed”.
He went on: “The government inherited a dire situation, which meant some very hard choices. But the Chancellor succeeded in her key objectives, to balance the books, while setting the country on a path toward economic growth, higher living standards and stronger, modernised public services…
“…Today, the Chancellor set the stage for the Parliament ahead. And by unlocking capital spending, she also laid new foundations for the prosperity and renewal that the country sorely needs.”
However not everyone was so positive. Paul Johnson, director of the Institute for Fiscal Studies, said the increase in public spending would lead to a “short-term sugar rush” as a result of the “debt-financed spending splurge”, but that ultimately growth would stall.
While CPS Director Robert Colvile said: “Labour came into power promising to secure the highest sustained growth in the G7. And the Chancellor opened her Budget by saying that the route to growth was to ‘Invest. Invest. Invest’. But by hammering the private sector, she has delivered a Budget which – as the Office for Budget Responsibility’s own figures show – will reduce business investment, trade and private sector activity, propping up the economy via higher state spending.”
He concluded: “The Budget also leaves Britain with staggeringly high – and historically unprecedented – levels of tax and spending, with growth forecasts well below the levels required to sustain even current levels of welfare spending, never mind meet the demands of an ageing population.”
Former Prime Minister, Rishi Sunak, responding on behalf of the Conservatives, told MPs that: “a few weeks ago the Prime Minister said the Budget would balance the books. But this Budget does no such thing and reveals that they haven’t been straight with the British people because today the Chancellor has launched an enormous borrowing spree, saddling our children and grandchildren with billions upon billions of pounds more debt, pushing up interest rates, leaving our economy more exposed to future shocks and leading the OBR today to now forecast higher inflation in every year of the forecast.
“Her decision to let borrowing rip make a total nonsense of her claims on the state of the public finance because if they truly were in such a dire strait as she has said, what we should have seen today is a significant reduction in borrowing to repair them, not the splurge she has just unleashed.”
And Reform Leader, Nigel Farage, took to X to denounced the budget as “politically clever but economically illiterate.”
Rachel Reeves rolls the dice, with massive tax and spend budget
