Rachel Reeves is set to announce a £35 billion tax agenda today, described by critics as a significant political move. This Budget, one of the most impactful in years, aims to stimulate growth through a strategy of high taxes, spending, and borrowing.
Ms Reeves emphasised the necessity of investment for economic growth, stating that restoring stability is crucial. She will become the first woman to deliver a Budget and plans to ease fiscal rules, allowing up to £50 billion in borrowing for infrastructure and green energy initiatives.
Ministers are concerned about market reactions, as borrowing rates increased to their highest since the election, sparking fears of rising mortgage rates. The Chancellor anticipates criticism from businesses due to tax increases on employers, including a £20 billion rise in National Insurance, which could lead to job losses and wage suppression.
Reeves is about to bring the pain.
“Tough decisions on spending and welfare”
“I won’t cut capital budgets” (spending into the private sector)
£100bn deficit needs £100bn in public spending cuts and tax rises.
Will include debt interest (debt to rise by more than £50bn p/a ) pic.twitter.com/5mbjfbof4k
— Polite Revolution (/s) (@PoliteRevo3255) October 25, 2024
The CBI warned that the tax hikes, alongside a significant increase in the minimum wage, could hinder firms’ ability to invest in technology and innovation. Investors will face a rise in capital gains tax. Despite Labour’s promise to protect ‘working people,’ most will be affected by a continued freeze in tax thresholds.
Robert Jenrick, a Tory leadership contender, criticised the Budget as deceptive, claiming it would harm working people and economic recovery. He accused Labour of misleading the public about tax increases.
Former Prime Minister Rishi Sunak, set to respond to the Budget, noted the expected National Insurance rise contradicts Labour’s manifesto, which vowed not to increase major taxes. He criticised Reeves for previously opposing the idea of raising employers’ NI.
Reeves recently softened her stance on protecting ‘working people’ from tax hikes, committing only to ensuring no immediate increase in their payslips. She plans to attribute the fiscal challenges to the previous Tory government, accusing Jeremy Hunt of leaving a £22 billion deficit and describing past spending plans as illusory.
The Budget is expected to allocate more funds to the NHS and public services. Reeves believes these measures could lead to higher growth and improved services, though she acknowledged making difficult decisions regarding taxes, spending, and welfare.
Key measures include a rise in employers’ National Insurance by up to 2p, a slight decrease in the threshold, and extending the income tax threshold freeze for another year. Private schools will lose VAT exemptions and business rates relief from January. Bus fares will see an increase, while the minimum wage will rise significantly.
Reeves will alter fiscal rules to permit £50 billion in additional borrowing for infrastructure, though she plans to spend only a portion today to avoid market backlash. The Chancellor will also end the temporary stamp duty cut, halve the tax-free threshold, and is likely to freeze fuel duty.
Inheritance tax reliefs for agricultural land will be tightened, and the time required for tax-free gift transfers may extend from seven to ten years. Capital gains tax on asset sales will increase, but second home owners may avoid further rises.
Funding will include billions for the NHS, £1.5 billion for surgical hubs and scanners, and £1.4 billion to rebuild schools. The windfall tax on energy firms will rise, and tax on tobacco products and e-cigarettes will increase to discourage use. Housing plans involve reducing discounts for council home buyers to increase social housing stock.
What Other Media Are Saying
- The Telegraph: Rachel Reeves’s National Insurance raise will generate less than half of the projected £20bn, a leading think tank warns, due to the knock-on effect of reduced profits and lower wages.(read more)
Frequently Asked Questions
Here are some common questions asked about this news
What is Rachel Reeves’ new tax agenda about?
It’s a £35 billion plan focusing on high taxes, spending, and borrowing to stimulate economic growth.
How will the new Budget affect businesses?
Businesses face higher National Insurance and capital gains taxes, potentially hindering investment in technology and innovation.
Will working people be affected by the tax changes?
Yes, despite Labour’s promise, most will be impacted due to continued tax threshold freezes.
What are the concerns about borrowing in the new Budget?
Ministers worry about market reactions and rising borrowing rates, which could lead to higher mortgage rates.
What changes will happen to public services funding?
The Budget allocates more funds to the NHS and public services, with significant investments in healthcare and education.
