We will not raise income tax. We will not raise National Insurance. We will not raise VAT. That is a manifesto commitment - Keir Starmer
We have already drawn a line under… tax rises last year, and we will never have to repeat a Budget like that again - Rachel Reeves
LIARS.
FT
Sir Keir Starmer has put Labour MPs on alert for hefty tax rises in this month’s Budget — including a possible income tax increase — as he promised to reduce Britain’s national debt but ruled out deep cuts to public spending. The prime minister told Labour MPs at a private Westminster meeting on Monday that the Budget would be based on “tough but fair decisions” and admitted the backdrop to the crunch fiscal statement was “worse than even we feared”.
Many Labour MPs are resigned to chancellor Rachel Reeves breaking the party’s election manifesto promise not to raise the rates of income tax, national insurance or value added tax. Starmer heightened speculation of an income tax rise when he told the Westminster meeting that the November 26 Budget would reject “austerity” — deep cuts to public spending — and the NHS would be protected.
Labour MPs fear a massive public backlash if Reeves does increase income tax, just as she provoked business ire with her £25bn rise in employer national insurance contributions in her first Budget last year. One Labour MP said with an element of gallows humour: “At least we will be able to look our employers in the eye and say ‘We aren’t just hitting you, we are hitting employees as well’.”
Reeves will deliver a speech in Downing Street on Tuesday where she will set out in more detail the “Labour values” that will inform her Budget. Reeves will say the Budget will reflect “the priorities of the British people”, namely “protecting the NHS, reducing our national debt and improving the cost of living”. Government officials said Reeves would confirm the investment already announced for the NHS will be “protected” and “won’t be cut back” to help fill a fiscal hole that economists estimate could be as large as £30bn.
In Reeves’ spending review in June, setting out funding plans for the rest of the parliament, the NHS in England received a 3 per cent real-terms rise in annual day-to-day expenditure. Starmer told his MPs that the Budget “will protect public services like the NHS. It will reduce our national debt and improve the cost of living”. He added: “Everyone knows the Budget takes place against a difficult economic backdrop. 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. “Faced with that, we will make the tough but fair decisions to renew our country and build it for the long term.” Starmer claimed the Conservatives and Reform UK would “return us to austerity”.
The determination of Starmer and Reeves to avoid “Tory-style” austerity, coupled with their drive to stabilise the public finances, has pointed towards higher taxes, including on the wealthy. Recommended The FT ViewThe editorial board Britain needs a bold Budget, not just another balancing act Reeves wants to bolster the public finances to reassure financial markets, with the hope of driving down government borrowing costs and helping the Bank of England cut interest rates. But the scale of the challenge confronting Reeves was underlined by research published by the Resolution Foundation think-tank, which estimated she would need to raise taxes by some £26bn and pencil in future spending cuts of £5bn to put the public finances in order and make progress in tackling poverty.
Shadow chancellor Sir Mel Stride said of the potential for big tax rises: “If Rachel Reeves breaks her promises yet again, Keir Starmer must take responsibility and sack her.” An ally of Starmer insisted no decisions had been taken to break Labour’s manifesto tax pledge. “There’s a long way to go,” they said. “The choice is between austerity, letting borrowing rip or taking the tough long-term decisions needed.”