November 3rd 2024.
In a recent revelation, Rachel Reeves admitted to making a mistake during the election by assuring voters that there would be no major tax increases. This admission comes shortly after the announcement of her first Budget, which has received both praise and criticism for its measures. The Budget includes a raise in minimum wage and a National Insurance hike, which some have welcomed while others have condemned.
Prior to the Budget, Reeves had claimed that the government was facing a significant spending deficit of £22 billion, particularly in areas such as education and healthcare. However, the Conservatives dismissed this figure as exaggerated. Reeves appeared on BBC's Sunday With Laura Kuessberg alongside new Conservative leader Kemi Badenoch to discuss the Budget.
But just a few months ago, on June 11th during the election campaign, Reeves had confidently stated that there would be no need for additional tax increases beyond what was already outlined in the Labour manifesto. However, she now explains that her change of stance is due to not having all the necessary information about the state of the public finances at the time.
In an interview with Sky News, Reeves revealed that she was only made aware of the true extent of the financial deficit after taking office on July 5th. She was briefed by senior officials at the Treasury who outlined the massive spending gap that was not previously known during the election. This was the catalyst for her decision to increase taxes.
At the core of this tax U-turn is a disagreement over the size of the financial deficit. The Office for Budget Responsibility (OBR) has since confirmed that their forecast in the spring and summer could have been different had they been informed of all the funding plans from the previous Conservative government led by Rishi Sunak. The OBR stated that the previous government failed to disclose around £9 billion in additional spending pressures before the last Budget in March. They also admitted that their position may have changed between March and July had they received this information.
Before delivering her Budget, Reeves had assured the public that her measures would not have a negative impact on "working people." She also emphasized that this Budget sets the spending plan for the entire Parliament and there would be no need for another Budget like this in the future.
However, economists have raised concerns about the current spending plans, warning that the Chancellor may have to find an additional £9 billion after next year to avoid cuts in unprotected departments. Reeves is relying on economic growth to prevent further tax increases, but both the OBR and experts have cautioned that growth is expected to remain low for the next five years.
The Chancellor has faced criticism for some of the changes made in her Budget, such as the removal of inheritance tax relief for farmers and the 1.2% national insurance increase for employers. On the other hand, certain groups have benefited from the Budget, including carers, minimum wage workers, and drivers. Carers will now be able to earn more without losing their allowance, and full-time minimum wage workers will see an increase of £1,400 per year. Pubgoers also received good news as the cost of a pint will go down by a penny.
Kemi Badenoch, the new leader of the Conservative Party, has promised to reverse Labour's decision to impose a 20% VAT on private schools starting in January. She argues that this decision was merely a "tax aspiration" and will not actually raise any money.
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