Reeves Breaks Manifesto Pledge as She Raises Taxes by £30 Billion

Rachel Reeves is to breach Labour’s election manifesto pledge as she raises taxes by £30 billion in her Budget, according to official forecasts accidentally published before her speech in the Commons. The Telegraph has more.

The tax burden will hit a new all-time high of 38.3% of GDP by 2031 as the Chancellor puts up taxes by £29.8 billion by the start of the next parliament, according to the Office for Budget Responsibility (OBR).

The documents showed the Chancellor will raise £8.3 billion by freezing income tax thresholds for another three years until the 2030-31 financial year.

The document also confirmed that a new tax raid on £2 million houses would go ahead, a £4.7 billion raid by scrapping National Insurance relief on pension contributions above £2,000 and the end of a long-standing freeze on fuel duty.

There will also be a £2.1 billion increase in taxes on income from dividends, savings and property as well as a £900 million hit from limiting capital gains tax relief.

Andrew Griffith, the Shadow Business Secretary, said: “This budget process has been a fiasco from start to finish and the unprecedented leak of the OBR’s report is just the final embarrassment.”

The OBR documents showed the Chancellor has raised her Budget headroom to £22 billion while also raising the bill for sickness and disability benefits by £109 billion by the start of the next Parliament.

The cost of servicing the national debt dropped sharply and the pound rose as the leak showed that borrowing is projected to fall from 4.5% of gross domestic product (GDP) in 2025-26 to 1.9% in 2030-31.

In a chaotic leak before the Chancellor addresses the Commons, it was reported that debt would rise as a share from 95% to 96% by the end of the decade.

Eir Nolsøe summarises the headlines thus:

• Personal tax thresholds will be frozen until end of decade, raising £8 billion. This will pull 780,000 more people into paying the basic rate of income tax and create 920,000 more higher-rate tax payers.
• National Insurance on salary-sacrificed pension contributions will bolster the public coffers by £4.7 billion.
• Increasing tax rates on dividends, property and savings income by two percentage points, raising £2.1 billion.
• A new mileage-based charge on electric and plug-in hybrid cars from April 2028, at around half the fuel duty paid by petrol drivers. This will raise £1.4 billion.
• A reduction in writing down allowances in corporation tax that will cost firms £1.5 billion. These allowances allow big companies to deduct a percentage of the value of certain items from their profits each year.
• An overhaul of gambling taxes that will bring in £1.1 billion while changes to capital gains tax reliefs on employee ownership trusts raising £0.9 billion.
• The trailed ‘mansion tax’ will hit owners of properties over £2 million from April 2028. It will be implemented as a council tax surcharge and raise £0.4 billion a year by the end of the decade.
• Borrowing to fall from 4.5% of GDP in 2025-26 to 1.9% by 2030-31.
• Meanwhile, debt as a share of GDP will end the decade at 96% of GDP, up from 95% this year. This is two percentage points higher than anticipated in March and twice the debt level of the average rich country, according to the OBR.
• The fiscal watchdog predicts growth will be 1.5% on average a year until the end of the decade, a downgrade of 0.3 percentage points from March. The OBR blamed this on a weaker outlook for productivity gains.
• Welfare U-turns and ending the two-child benefit are poised to cost the taxpayer £9 billion a year by the end of the decade.

Reeves defended her choices, saying there would almost be £22 billion of headroom in the public finances as a result of her Budget.

I said there would be no return to austerity, and I meant it. This Budget will maintain our investment in our economy and our National Health Service. I said I would cut the cost of living, and I meant it: this Budget will bring down inflation and provide immediate relief for families. I said that I would cut debt and borrowing, and I meant it: because of this Budget, borrowing will fall as a share of GDP in every year of the forecast.

Our net financial debt will be lower by the end of the forecast than it is today and I will more than double the headroom against our stability rule to £21.7 billion – meeting our stability rule and meeting it a year early.

These are my choices. Not austerity. Not reckless borrowing. Not turning a blind eye to unfairness. My choice is a Budget for fair taxes, strong public services, and a stable economy. That is the Labour choice.

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James Baxter Derrington says the Budget “has broken the deal the Labour Party made with the nation and breached its manifesto”.

The extension of the income tax threshold freeze – Rishi Sunak’s invidious invention – is a direct increase in the taxes that working people pay, to the tune of more than £8 billion. Every penny of this will be swallowed up, not by improved public services for us all but by increased benefits payments to a select few. In fact, it will barely cover half of that cost.

For a Chancellor so dedicated to targeting those with the “broadest shoulders”, she has picked one of the most regressive taxes possible. This stealth tax will not target the wealthiest but disproportionately affect those working desperately hard on lower salaries. A party founded on the principle of supporting the working man has just betrayed him.

Continuing in the spirit of prioritising state reliance over rewarding work, Reeves has slashed the amount employees can put into their pensions via salary sacrifice schemes. Don’t worry about funding your own retirement through prudent saving, this government is keen to create a generation of pensioners reliant on the state.

The Telegraph highlights that Reeves has now raised taxes by £70 billion across her two Budgets, more than seven times the £8.5 billion mentioned in the manifesto. Meanwhile the national debt will rise to £3.5 trillion by 2031, more than double the £1.6 trillion before the pandemic (on the measure of public sector net debt excluding the Bank of England, the metric used under the Conservatives) as Rachel Reeves’s borrowing mounts up.

The Office for Budget Responsibility has also said that estimated costs for asylum accommodation are more than triple the amount previously thought. From the Telegraph:

The forecast said that demand for asylum accommodation had grown and is “expected to cost £15.2 billion over the next 10 years, revised up from the Home Office’s previous estimate of £4.5 billion”. 

Nick Timothy, a Conservative MP, said: “Labour said they’d smash the gangs, stop the crossings and close the hotels. 

“Now they plan to more than triple accommodation spending for illegal immigrants.”