Published On: Mon, Jul 8th, 2024
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Rachel Reeves just triggered fresh alarm bells over punishing £15bn Labour tax bombshell | Politics | News


Rachel Reeves

Rachel Reeves wants to ‘understand the full scale of the challenge’ (Image: Getty)

Rachel Reeves raised the spectre of punishing tax rises this autumn as she warned that Britain is facing the worst public finances since the Second World War.

The new Chancellor said she has already ordered Treasury bean-counters to compile a dossier on the current state of play over the coming three weeks.

The swift move has triggered alarm bells that Labour is laying the groundwork for up to £15 billion of tax rises in its first Budget.
Both Rishi Sunak and Jeremy Hunt warned during the general election campaign that “as sure as night follows day” Labour will put up taxes.

Such is its importance, one of the Daily Express’ 10 pledges in our manifesto – aimed at holding the new government to account – is for lower taxes.

But in a worrying sign of things to come Ms Reeves used her first speech as Chancellor to pin the blame on the previous government for the “tough decisions” that lay ahead.

“I have repeatedly warned that whoever won the general election would inherit the worst set of circumstances since the Second World War,” she said.

“What I have seen in the past 72 hours has only confirmed that our economy has been held back by decisions deferred and decisions ducked, political self-interest put ahead of the national interest. A government that put party first and country second.”

Ms Reeves said that she had instructed civil servants over the weekend to make an assessment of the public finances “so that I can understand the full scale of the challenge”.

In comments that will lead to speculation of tax rises, Ms Reeves said that previous governments had been unwilling to make the “difficult decisions to deliver growth”. She added: “I will not hesitate.”

Economists have warned that the new Labour government will likely have little choice but to introduce tax rises to rebuild struggling public services.

In the run up to the election, Paul Johnson, director of the Institute for Fiscal Studies (IFS), criticised all parties for a “conspiracy of silence” in the manifestos over the true scale of the economic and fiscal challenges facing the new administration.

Analysts at the investment bank Citi have said they expect a package of tax increases in the autumn worth around £15 billion.

The IFS has warned that wealth taxes, such as inheritance tax and capital gains tax, are one of the few options left on the table for a Labour government.

On the campaign trail, Labour ruled out increases to income tax, National Insurance, the headline rate of corporation tax and VAT, which combined make up around three quarters of the Treasury’s tax take.

She has also come under pressure to tax interest paid to banks on reserves that they are required to deposit with the Bank of England. Mr Brown has suggested that introducing a tax could raise £1.3 billion.

However, Ms Reeves said: “I’ve got no intention on changing the way the reserves are treated and the interest paid on those reserves.”

Former Treasury Minister Alan Mak said the Labour party are already showing their true colours when it comes to taxation.

Conservatives cut National Insurance tax and returned inflation to the 2% target to ease cost of living pressures.

“Labour will put up taxes, and come after your pay packet, pension, car, house and anything else they can tax.”

The Conservative Party accused Ms Reeves of a “ruse” to raid pensions and push up taxes.

A spokesman said: “Rachel Reeves herself said you don’t need to win an election to find out the state of the public finances. Admitting that with the OBR, there is already detailed public scrutiny of the country’s finances.

“We warned that Labour would attempt this ruse as a cause to raid pensions and raise taxes. It is now clear that is coming to pass, and the British people will pay the price.”

Ms Reeves, the first ever woman to be Chancellor, also unveiled a series of planning reforms and set out a “national mission” to deliver growth.

She promised investors “Britain is a place to do business” and said many companies had doubted whether the country was previously a “safe haven”.

The Chancellor said her Government would build 1.5 million new homes over the next five years while relaxing planning restrictions on building on parts of the green belt.

She also pledged to bring back mandatory housebuilding targets.

Ms Reeves said: “I know that there will be opposition to this. I’m not naive to that.

“And we must acknowledge that trade offs always exist.

“Any development may have environmental consequences, place pressure on services, and rouse voices of local opposition.

“But we will not succumb to a status quo.

“This Labour Government has been elected to get things done to get Britain building again.”

John O’Connell, chief executive of the TaxPayers’ Alliance, said: “As well as addressing issues with planning, the new government should take seriously the significant problems with the tax system and the many ways in which it harms economic growth and reduces investment.”

During a tour of devolved nations, Sir Keir Starmer described the future of Tata Steel as being of “great concern” following a meeting with the Welsh First Minister.

The Prime Minister visited the Senedd in Cardiff Bay on Monday to meet Vaughan Gething, the leader of Wales.

His trip follows visits to the other devolved nations, having stopped in Belfast earlier on Monday and Scotland on Sunday.

It comes amid concerns about job losses at Tata steelworks in Port Talbot, where around 2,800 jobs are at risk.

Although Keir Starmer ruled it out during the election campaign, economists have warned further education is among several public services likely to suffer cuts because of expensive commitments made on protected services such as the NHS and defence and green investment.

The Resolution Foundation last month said £19 billion of cuts was needed from unprotected budgets for any new government to meet national debt targets by the end of the next parliament. One of Rachel Reeves’ “fiscal rules” is for debt to fall over that time.



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