LONDON (AP) – British Treasury chief Rachel Reeves raised taxes by around 40 billion pounds ($52 billion) on Wednesday to address what she claims is a hole in public finances and fund the U.K.’s cash-starved public services. This comes in a significant budget that could shape the political tone for years to come. In the Labour Party’s first budget since regaining power in July after 14 years, Reeves also adjusted the U.K.’s debt rules. This move will enable the government to borrow more for what she describes as ‘invest, invest, invest’, but opposition figures label it as a ‘fiddling of the books’. Her largest cash commitment is an additional 25 billion pounds for the esteemed National Health Service, which has seen waiting lists reach record levels following the coronavirus pandemic.
The new Labour government is taking significant steps to ‘rebuild’ the UK, with Chancellor Reeves asserting that the decisions made are crucial for the nation’s future. Reeves stated, “The choices that I have made today are the right choices for our country,” at the conclusion of an almost 80-minute speech. The government is focused on restoring public finance stability, protecting working people, fixing the NHS, and rebuilding Britain.
A substantial increase in taxes, marking the largest proportional rise in over three decades, is primarily due to higher taxes on businesses for employing individuals. Reeves justified this by citing the economic “black hole” inherited from the previous Conservative government. According to the independent Office for Budget Responsibility, the overall tax burden is expected to increase from 36.4% of the UK’s annual GDP in 2024/25 to a “historic high” of 38.3% in 2027/28.
The most significant single tax increase, valued at 25 billion pounds, is a rise of 1. This measure is part of the Labour government’s broader strategy to address the economic challenges and invest in the nation’s infrastructure and public services.
The new Labour government in the UK is implementing a series of financial measures to ‘rebuild’ the nation. Employers will face a 2 percentage point increase in national insurance contributions on lower salaries, while the levy originally designed for NHS funding remains unchanged for employees.
To alleviate the impact on smaller businesses, the allowance to offset their tax liability has been doubled.
Billions will be generated from increased capital gains tax, closing tax loopholes on inherited wealth, and raising taxes on private jet users and those attending fee-paying schools.
Surprisingly, the fuel tax at the gas pump remains unchanged, but taxes on alcoholic beverages have been increased, with the exception of a minor reduction for a pint of draught beer or cider.
The new Labour government is seeking to’rebuild’ the UK with higher taxes, spending, and borrowing. Rachel Reeves has utilized some of the raised taxes and extra borrowing to increase spending for several government departments, including education. Schools will receive more funds to establish breakfast clubs and upgrade facilities. Additionally, 11.8 billion pounds has been set aside to compensate victims of the infected blood scandal in the 1970s and 1980s, and 1.8 billion pounds for victims of the Post Office Horizon scandal where hundreds of branch managers were wrongly convicted due to a faulty computer system. The center-left Labour party won a landslide election victory on July 4 after pledging to end years of turmoil and scandal under successive Conservative governments, boost Britain’s economy, and restore frayed public services. However, the scale of the measures announced by Reeves on Wednesday exceeded Labour’s cautious general election campaign.
Reeves and Prime Minister Keir Starmer state that they inherited an economy in a much more precarious state than they had anticipated. Reeves claims her budget measures are necessary to ‘fix the foundations’ of an economy that she argues has been weakened by the Conservatives. They assert that they left an economy that was growing, albeit moderately, and borrowing was brought back under control after the pandemic and the surge in energy costs following Russia’s invasion of Ukraine. During the election, Labour pledged not to raise taxes on ‘working people’, a term whose definition has been widely debated in the media for weeks. Although Reeves did not increase taxes on income or sales, the Conservatives contend that hiking taxes on employers is a violation of Labour’s election promise and will result in lower wages.
Rishi Sunak, the former prime minister who leads the party until his successor is announced on Saturday, said, ‘Time and again, we Conservatives warned Labour would tax, borrow and spend far beyond what they were telling the country. And time and again, they denied they had such plans. But today, the truth has come out.’ Rachel Reeves, Britain’s first female chancellor of the exchequer since the position was created 800 years ago, 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 have been careful not to cause concern in financial markets.
The new Labour government in the UK is taking an ambitious approach to ‘rebuild’ the nation, with taxes, spending, and borrowing all on the rise. This comes two years after the short-lived premiership of Liz Truss, which ended due to financial market turmoil caused by a series of unfunded tax cuts.
Early market reactions to the Labour government’s policies show some signs of nervousness, with interest rates on British government debt increasing after the announcement by Reeves. The primary concern seems to be that significant changes in tax and spending are not substantially boosting the economy. The Office for Budget Responsibility, which provides economic forecasts for the government, predicts a short-term boost to the economy, but lower growth rates in the subsequent years compared to previous estimates. Thomas Pope, deputy chief economist at the Institute for Government think tank, describes the budget as a “really big shift,” particularly in terms of tax policy. He explains that the revenue generated from these taxes will be directed towards public services and investments, with the expectation that this will improve the financial well-being of citizens by the next election.
