‘Spend now, pay later’ – Reeves drags a million more Brits into higher rate tax
Nearly a million more people will be dragged into paying the higher rate of income tax as Rachel Reeves took the UK’s tax burden to an all-time high.
In a Budget that aims to raise some £26bn in extra government revenue by the end of parliament, Reeves extended the income tax thresholds freeze, which economists and political opponents said represented a breach of the Labour Party’s manifesto promise not to hike taxes on working people.
The £8bn stealth tax will lead to 920,000 more Brits paying 40 per cent tax on their income and 780,000 more people paying into government coffers at the basic rate, according to the Office for Budget Responsibility (OBR), the fiscal watchdog which assesses the government’s plans.
On a chaotic day that saw the OBR mistakenly publish its full fiscal report on the Budget’s measures nearly an hour before its scheduled release, Reeves announced an avalanche of other tax hikes on the wealthy, motorists and savers to make up for the costs of a £16bn productivity downgrade and a £73bn splurge in extra welfare spending over the next five years.
Firing back at Reeves’ measures, Tory leader Kemi Badenoch hit out at the Chancellor’s “laundry list of excuses”, calling for her resignation for “breaking her promises”. Reform UK’s Nigel Farage said the Budget was an “assault on aspiration”.
Top economists have also taken aim at Reeves’ risky approach to the public finances after the headroom, otherwise known as the current budget surplus the Chancellor must factor into fiscal planning if she is to meet her own rules, was more than doubled to £22bn.
The OBR suggested there was just a 59 per cent chance of Reeves meeting her fiscal rules, a marginal increase on the probability compared to what it said at the Spring Statement.
More tax hikes in the future
City analysts and think tanks suggested that back-loaded tax hikes around the time of the next General Election may not stick, with top firms warning that further tax hikes or spending cuts were to be expected.
Helen Miller, the boss of the Institute for Fiscal Studies, called out the “spend now, pay later” Budget measures that showed “no real appetite for using tax reform to boost growth”.
David Rees, head of global economics at Schroders, one of the biggest holders of government bonds, said: “We suspect it will not be long before the government is forced to come back with more fiscal consolidation.”
Andrew Goodwin, chief UK economist at Oxford Economics said: “The backloaded nature of the measures, the uncertain impact on revenues of many of the tax-raising measures, a lack of spending restraint, and the absence of any growth measures undermine the credibility of the package, in our view.”
Speaking to journalists after the Budget, Reeves said: “I can’t write future Budgets, but if you are asking, ‘is this a budget I wanted to deliver today?’ I would have rather the circumstances were different.”