Labour 'prepare £40 billion in tax rises and spending cuts', as Chancellor admits to facing 'difficult decisions'
15 October 2024, 23:15
Rachel Reeves is seeking to close a £40 billion funding gap at the Budget later this month.
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The Chancellor will seek to raise the cash through tax rises and spending cuts in her announcement on October 30, according to multiple reports.
Labour have been talking about a £22 billion "black hole" in the public finances for months - but it appears the issue may be even bigger.
Ms Reeves told the Cabinet on Tuesday that raising £22 billion would only be enough to keep public services "standing still" without improving them, the Times reported.
She told ministers: "We are facing a difficult inheritance, but the decisions we take at the budget will be worth it. We will put the country on a firmer footing, with honesty about the scale of the challenge, including the £22 billion black hole that has been left in the country’s finances.
"That does mean there will be difficult decisions on spending, welfare and tax. But the only way through this is in the long term is economic growth through investment.”
The £40 billion figure may be revised down again if the independent watchdog the Office for Budgetary Responsibility projects better economic growth.
Labour will look to prioritise the NHS in the Budget, with major investments in the health service and other public services.
Ms Reeves told the Cabinet: “The budget will be about protecting working people, starting to fix the NHS and rebuilding Britain.
"We cannot turn around 14 years of damage in one budget, but we can start to deliver on our promise of change.”
It comes after the Chancellor and Keir Starmer both refused to rule out increasing national insurance contributions (NICs) for employers.
The Prime Minister said on Tuesday: "said: "We were very clear in the manifesto that we wouldn't be increasing tax on working people and we expressly said that that was income tax, that was NICs etc."
He added: "It wasn't just the manifesto, we said it repeatedly in the campaign and we intend to keep the promises that we made in our manifesto.
"So I'm not going to reveal to you the details of the Budget, you know that that's not possible at this stage.
"What I will say is where we made promises in our manifesto, we will be keeping those promises."
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This possible move has been criticised by some economists and business groups.
Stuart Adam, of the Institute for Fiscal Studies think tank, said: “Employer National Insurance contributions are a tax on the earnings of working people.
"In the short run, the cost of higher NICs may be absorbed into lower firm profits, which would ultimately be felt by shareholders. But in the long run we would expect the majority of a rise in employer NICs to be passed on to workers in the form of lower wages.”
Kate Nicholls, the chief executive of UKHospitality, called the suspected plan a “tax on jobs”.
She added: “An increase would particularly hammer sectors like hospitality, where staffing costs are the biggest business expense.
“Hospitality businesses are much less able to stomach yet another cost increase, when they’re already managing increases in other areas like wages, food, drink and energy.
"But it is hospitality that is most likely to support people from economic inactivity back into the workforce.”
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The Conservatives also criticised plans to increase employer NICs.
Laura Trott MP, the Conservative shadow chief secretary to the Treasury, said: “In 2021, the [now] chancellor said increasing employer national insurance was a tax on workers. That’s why even in her own words it breaks Labour’s manifesto promise not to increase tax on working people.
“Rachel Reeves herself previously called the move anti-business and we agree, it is a tax on work that will deter investment, employment and growth, and the OBR [Office for Budget Responsibility] says it will lower wages.
“Only a day after their first investment summit, the prime minister and chancellor are choosing to sow further uncertainty and chaos for businesses by opening the door to a new jobs tax.”
