Rachel Reeves: 'We're not going to need another budget like this again'
| Updated:
Rachel Reeves tells the News Agents she has done “everything” in her power to “protect the incomes of ordinary working people” after announcing a £40 billion tax rise in the first Labour budget in 14 years.
Listen to this article
Read time: 5 minutes
In brief…
- Chancellor Rachel Reeves announced a £40 billion tax rise in the first budget of the Labour government
- Key measures include a rise in employers' national insurance contributions, a boost to NHS spending and a rise in capital gains tax
- Reeves tells The News Agents the budget will hit the wealthiest and businesses the hardest, and protect ordinary “working people”.
Is it naive to think Rachel Reeves' budget doesn't affect working people?
What’s the story?
The last time Chancellor Rachel Reeves spoke to The News Agents, she warned the country's finances were in a dire state due to a £22 billion fiscal black hole left behind by the Tories.
Today, she tells Emily Maitlis and Jon Sopel how the biggest tax raising budget since 1993, Labour’s first in 14 years, will raise the money to plug that gap.
“I've made the right choices in those difficult circumstances, to do everything in my power to protect the incomes of ordinary working people,” she says.
Who will bear the biggest burden from the tax rises?
While Reeves says she ruled out taxes on working people, she did increase national insurance contributions for employers.
Emily and Jon point out that this is likely to hit small and medium-sized businesses’ hard, but also employees. “Tax experts have told us this is one of the worst taxes to increase on employers. It just discourages hiring. It encourages avoidance. It depresses longer term wages.
“Fundamentally it does impact people's incomes, and it's just naive to pretend it doesn't,” Emily says.
Reeves stresses that she has introduced this measure because she had “two choices” to make.
These were, whether she “wanted to be responsible” or whether she “wanted to just brush all the problems under the carpet like the previous government.” In the end, Reeves says she chose the latter.
There was always going to be a burden, she explains, but Reeves argues that this burden will mainly “fall on the wealthiest in society and also on business”. But she admits: "We're not going to need to do another budget like this again"
Was cutting the winter fuel allowance a mistake?
Will her budget grow the economy?
“Invest, invest, invest”
This is what Reeves says will bolster the British economy.
But with measures such as employment rights from day one for new staff, increased National Insurance contributions and the minimum wage, Jon asks how she will be able to grow the economy with policies that sound “anti-growth”.
Reeves hits back: “The OBR (Office for Budget Responsibility) says the measures we're taking can boost long term growth by 1.4%, that is significant and can make a big difference in people's lives.”
She adds: “There are huge opportunities here in Britain, and the prize is immense if we get this right, if we bring that investment, if we bring that wealth creation to Britain.”
In the build up to the budget, Reeves had ruled out a rise in national insurance taxes on individuals, VAT and income tax.
Jon asks whether this left her with little “wiggle room”.
“We ruled those out because in the last parliament, living standards stagnated. It was the worst parliament on record for living standards.
“I ruled out increasing those taxes, because they are the key taxes that working people paid.”
What was announced in the budget?
- Taxes will rise by £40 billion overall
- National Insurance will rise from 13.8% 15% for employers
- The lower rate of Capital Gains Tax will rise from 10% to 18%, and the higher rate from 20% to 24%.
- The inheritance tax threshold freeze of £325,000 has been extended until 2030.
- Reeves scrapped the non-dom tax regime, which lets foreign nationals living in the UK avoid paying tax on their overseas income
- The exemption of VAT on private school fees will be scrapped from January
- A £22 billion increase for the day-to-day NHS budget
- The right to buy discount will be reduced and local authorities able to retain more money from sales
- Fuel duty has been frozen
- A rise in stamp duty on second homes from 2% to 5%
- A “penny off a pint” in pubs, with draught duty cut by 1.7%
- Private jets: Increased rate of air passenger duty by 50%
- The UK will give Ukraine £3 billion per year "for as long as it takes"
- A tax on vaping to discourage non-smokers and young people will be brought in. Duty on hand-rolled tobacco will go up 10%
- The National Living Wage will go up by 6.7% from £11.44 an hour to £12.21 for those aged 21 and above.
- The Department for Education will receive £6.7 billion, a 19% real-terms increase, including £1.4 billion to rebuild schools in the greatest need.
Can Rachel Reeves rule out more tax rises for the rest of this parliament?
What’s The News Agents’ take?
Emily says: “What is unresolved is that she will go to her grave talking about working people, yet everything about the National Insurance raise on employers, we know will feed into working people's pockets.”
It is an unsustainable position, Emily adds, to “carry on saying we've done something that won't touch working people when… it will hurt people's household incomes.”
Jon thinks the central tension of the budget is that while Reeves says she wants to foster growth, enterprise and investment, she is also saying that she wants to hit businesses and the wealthiest people the hardest in the budget.
So if the idea is that businesses are going to be the engine of growth and they've been saddled with additional costs through this budget, then “how do you resolve this?”Jon asks.
Jon adds: “The bar is low at the moment, and let's face it, if the Labor Government is facing re-election in four years time and they've exceeded those growth figures and the investment has come in, then she'll be able to say, ‘Well, I told you so’.
“It feels like this is day one of the Labour government. It feels like we finally got started. We've finally seen what Labour means in policy terms, what it means in action.”
Listen in full on The News Agents.
