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LONDON -- British Treasury chief Rachel Reeves told lawmakers Wednesday that taxes will rise by 40 billion pounds ($52 billion) in order to plug a hole in the public finances and provide new funding for the U.K.'s cash-starved public services, in a wide-ranging budget statement that could set the tone for years to come.
In the Labour Party's first budget since returning to power earlier this year after 14 years in opposition, Reeves said she was also changing the U.K.'s rules so the government can “invest, invest, invest” and get the economy growing. Her biggest cash commitment was an additional 25 billion pounds for the country's cherished National Health Service, which has seen waiting lists rise to record levels in the wake of the coronavirus pandemic.
“The choices that I have made today are the right choices for our country,” she said at the end of her statement, which lasted the best part of 80 minutes. “To restore stability to our public finances. To protect working people. To fix our NHS. And to rebuild Britain.”
Reeves said the tax hike, which in large part comes from an increase in the tax businesses pay for employing people, is needed because of the economic “black hole” left by the previous Conservative government.
The biggest tax increase — worth 25 billion pounds — is a rise of 1.2 percentage points in so-called employer national insurance contributions, though Reeves insisted that many smaller businesses will not be affected as she lifted the salary threshold at which they start paying it. Further money will also come from increases in capital gains tax and closing loopholes in the way inherited money is taxed.
The center-left party was elected July 4 after promising to banish years of turmoil and scandal under Conservative governments, get Britain’s economy growing and restore frayed public services.
However, it said taxes on so-called “working people” — a term whose definition has been hotly debated in the media for weeks — will not be raised, so Reeves did not change taxes on income or sales. She also unexpectedly maintained the freeze on the levy that drivers pay for fuel.
Since being elected, Prime Minister Keir Starmer and Reeves have sought to justify the need for tax rises, while maintaining that there would be no repeat of the austerity that marked the early years of the previous Conservative government after it was first elected in 2010.
Reeves argued that higher taxes and limited public spending increases are needed to “fix the foundations” of an economy that it argues has been undermined by 14 years of Conservative government.
The Conservatives say they left an economy that was growing, albeit modestly, with lower levels of debt and a smaller deficit than many other Group of Seven wealthy nations.
Reeves — Britain’s first female chancellor of the exchequer, a position that has existed for some 800 years — also said she is tweaking the government’s debt rules so that she can borrow billions more for investment in the health system, schools, railways and other big infrastructure projects, and to raise money by hiking tax paid by employers, though not employees.
Though the budget is set to be one of the most consequential in years, Reeves will no doubt have been careful not to cause concern in financial markets. Two years ago, the short-lived premiership of Liz Truss foundered after a series of unfunded tax cuts roiled financial markets and sent borrowing costs surging.
Her successor Rishi Sunak sought to get a grip on the public finances but was unable to dislodge the notion that the Conservative Party had lost control of the economy, arguably the biggest reason why it suffered its worst election defeat in 200 years.
In the run-up to the budget statement, the U.K.'s borrowing costs in the markets edged higher, suggesting there is some unease about the path ahead.
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