Chancellor admits Budget will hit workers’ pay - as ‘Brits to be left around £300 worse off’
31 October 2024, 08:34
Rachel Reeves has admitted the Budget is likely to hit workers' pay, as she defended the tens of billions in tax rises announced yesterday.
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The Chancellor told LBC's Nick Ferrari at Breakfast that she had to make difficult choices at the Budget, which she delivered yesterday in the House of Commons.
Ms Reeves announced tax rises of £40 billion on Wednesday, including a £25.7 billion rise in employer national insurance contributions.
Choices made by Ms Reeves will see the overall tax burden reach a record 38.3% of gross domestic product (GDP) in 2027-28, the highest since 1948.
Labour said this did not break a campaign pledge to raise taxes on "working people" - but economists have predicted that companies paying more will likely have a knock-on effect on wages.
Fiscal watchdog the Office for Budget Responsibility (OBR) said average real household disposable incomes would be around £300 lower per person as a result of the Budget.
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Watch Again: Nick Ferrari is joined by Chancellor Rachel Reeves | 31/10/24
Ms Reeves told Nick: "I faced a situation going into this budget with a massive black hole in the public finances.
"Now I could have just swept it all under the carpet, dealt with it, a bit of it now and then come back in a year's time and ask for people to pay a bit more next year.
She said that instead she wanted to be "open and honest and transparent" about the importance of bringing "stability" to the economy.
"To do that, we did have to raise money yesterday. Now there are choices about how to do that, and the choice could have been made to increase income tax or employee national insurance or VAT.
"I think they would have been the wrong decisions, given all of the challenges that families have had over the last few years with their finances, with the cost of living crisis.
"So I have asked businesses to pay more, I recognise that it may result in slower wage growth than might otherwise have happened, but overall, the forecasters yesterday are saying that real household disposable income is going to increase over this parliament, that unemployment is going to afford and employment is going to rise."
Ms Reeves also plans to pour more public cash into schools, hospitals, transport and housing, and will change the way government debt is measured to allow her greater borrowing flexibility.
The OBR has however predicted the measures will be unlikely to lead to the longer term boost in economic growth the Government wants to see.
Ms Reeves told Nick that the OBR's growth forecasts "are not the summit of my ambition", insisting that "we're making the long term decisions to put our country on a better path."
Influential economics think tank the Institute for Fiscal Studies (IFS) has said she may need to raise taxes again in future if her "gambles" on spending do not result in growth.
Ms Reeves has not ruled out raising taxes again in future.
In the Budget announcement on Wednesday, the Chancellor also chose to knock a penny off a pint at the pub, raised Carer's Allowance and the National Living Wage, as well as injecting £22.6bn into the day-to-day running of the NHS.
Watch Again: Nick Ferrari is joined by Tory leadership contender Kemi Badenoch | 31/10/24
The Chancellor also confirmed a notable increase in Capital Gains Tax as part of Wednesday's announcement.
It came despite fears she would seek to end the freeze to raise funds in the Budget, after she warned of a £22 billion.
As part of the budget, Rachel Reeves chose to extend the fuel duty freeze as part her announcement, allaying fears that motorists would have to pay higher taxes at the pump.
Ms Reeves said she would maintain the freeze on fuel duty, which has been in place since 2011, as well as maintaining for another year the 5p cut brought in by the Conservatives in 2022.
The Budget also saw Reeves raise the National Living Wage. Employees aged 21 and over will see wages rise from £11.44 an hour, to £12.21.
For those aged 16 or 17, the minimum wage will rise from £6.40 an hour to £7.55. Those aged 18-21 will also see National Minimum Wage go up, increasing from £8.60 an hour to £10 an hour.
