Her biggest cash commitment was an additional 25 billion pounds for the 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.”
The overall increase in taxes, which is the biggest for over three decades, comes in large part from an increase in the tax businesses pay for employing people. Reeves said it was needed because of the economic “black hole” left by the previous Conservative government.
The overall tax burden in the UK is forecast to rise from 36.4% of the U.K's annual GDP in 2024/25, to a “historic high” of 38.3% in 2027/28, according to the independent Office for Budget Responsibility.
The biggest single tax increase — worth 25 billion pounds — is a rise of 1.2 percentage points in national insurance contributions paid by employers. The levy, which pays for benefits and helps fund the NHS, will remain unchanged for employees. Reeves insisted that many smaller businesses will not be affected as she doubled the salary threshold at which they start paying it.
Billions more will also come from increases in capital gains tax and closing loopholes in the way inherited money is taxed, while other revenues will come from potentially politically attractive sources such as those who use private jets or send their children to fee-paying schools. One tax that was surprisingly left unchanged was the levy that drivers pay at the pump, while taxes on most alcoholic drinks were increased — a pint of draught beer or cider was cut by a penny, though.
As well as increasing taxes, Reeves also raised spending for a number of departments, aside from health. Schools will get more, for example, this year, which will be used to create breakfast clubs for young students and upgrade facilities.
She also set aside 11.8 billion pounds to compensate those affected in an infected blood scandal that saw tens of thousands of people contracted HIV or hepatitis from transfusions of tainted blood and blood products in the 1970s and 1980s. She also set aside 1.8 billion pounds to compensate victims of the Post Office Horizon scandal, which saw hundreds of branch managers wrongly convicted of theft and fraud as a result of a faulty computer system.
The center-left Labour party was elected July 4 after promising to end years of turmoil and scandal under Conservative governments, get Britain’s economy growing and restore frayed public services. But the scale of the measures announced on Wednesday by Reeves was not hinted at during Labour's cautious general election campaign nor in its manifesto for government.
Rishi Sunak, the former prime minister who leads the Conservative Party until the weekend when his successor is announced, said the budget was "broken promise after broken promise" and that "working people will pay the price."
During the election, Labour said taxes on so-called “working people” — a term whose definition has been hotly debated in the media for weeks — will not be raised. Though Reeves did not increase taxes on income or on sales, the increase on employers' national insurance contributions will likely reverberate for a while as Sunak said it was a clear breach of Labour's manifesto commitment and would lead to lower wages.
Since being elected in a landslide victory, Prime Minister Keir Starmer and Reeves have said they inherited an economy that was in a far more parlous state than they thought. However, they have maintained 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 said her budget, which included a big increase in borrowing too, was 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 debt trending lower.
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 by accounting for assets as well as liabilities. The change will in effect free up billions more for investment in health, schools, transport and other big infrastructure projects, particularly in the transition to net zero.
Though the budget is arguably the most consequential since 2010 in the wake of the global financial crisis, 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.
Early signs suggest that there is some nervousness in the markets, with the interest rates charged on British government debt edging higher in the wake of Reeves' statement.
Part of the reason appears to be that big changes in tax and spend do not appear to be doing much to bolster the economy. The Office for Budget Responsibility, which provides the forecasts for the economy, said the economy will get a boost over the coming couple of years but that growth in subsequent years will be lower than previously thought.
Credit: AP
Credit: AP
Credit: AP
Credit: AP
Credit: AP
Credit: AP