Chancellor Rachel Reeves has indicated that taxes are likely to rise in Labour’s first budget, although she ruled out increases in national insurance, VAT, or income tax.
In an interview on the News Agents podcast, Reeves did not exclude potential hikes in inheritance tax, capital gains tax, or changes to pensions. “I think that we will have to increase taxes in the budget,” she said, adding that Labour’s manifesto commits to not increasing national insurance, VAT, or income tax during this parliament.
The budget, set for 30 October, is expected to involve “more difficult decisions,” according to Reeves, who cited a £22 billion shortfall in public finances left by the previous Conservative government. This statement has prompted criticism from the Conservatives, accusing Labour of paving the way for tax increases.
Reeves has accused former Chancellor Jeremy Hunt of misleading parliament and the public about the state of public finances, alleging a deliberate cover-up. Hunt has denied these claims and has disputed the government’s assessment in a letter to Simon Case, the Cabinet Secretary.
To address the financial shortfall, Reeves has cancelled several Conservative initiatives, including a long-anticipated social care cost cap, hospital projects worth £3.7 billion, and various road projects. Additionally, she has introduced means testing for winter fuel payments, reducing the number of pensioners receiving the allowance from 11.4 million to 1.5 million.
Nearly half of the £22 billion shortfall, £9.4 billion, is attributed to Reeves’s decision to fully fund above-inflation public-sector pay recommendations and offer junior doctors a 22.3% pay rise over two years to end their strike action. Reeves defended this decision, arguing that public sector workers deserve pay rises comparable to the private sector and highlighting the lower cost of ending the strikes compared to their continuation.
Reeves also addressed the scrapping of planned social care reforms, calling it a “tragedy” and blaming the Conservative party for the necessity of these cuts to maintain economic stability.
An HM Treasury spokesperson confirmed that further difficult decisions on tax and spending are expected in the upcoming budget, reiterating that there will be no increases in national insurance, VAT, or income tax.