Reeves raises UK taxes by £40 billion in Labour’s first Budget
The Budget is a make-or-break moment for both her and PM Keir Starmer, as they try to recover from a polling slump since their Labour Party won power in July
RACHEL Reeves said she was raising taxes by £40 billion (S$68.6 billion) in her historic first Budget, to boost spending on public services and cover a fiscal hole she said was left by the previous Conservative government.
“The scale and seriousness of the situation that we have inherited cannot be underestimated,” Reeves said in the House of Commons on Wednesday (Oct 30). She is the first female chancellor of the exchequer to deliver a budget in the 800-year history of the role. “Any chancellor standing here today would face this reality, and any responsible chancellor would take action. That is why today I am restoring stability to our public finances and rebuilding our public services.”
The Budget is a make-or-break moment for both Reeves and new Prime Minister Keir Starmer, as they try to recover from a polling slump since their Labour Party won power in July, and bid to set up an election win in five years’ time.
Reeves forecast Britain’s budget deficit to be £26.2 billion in the 2025-2026 financial year, citing new projections from the Office for Budget Responsibility.
That would move into a surplus of £10.9 billion in 2027-2028, she said.
Government borrowing was projected to be at £127 billion in the current financial year, Reeves said, adding that borrowing was expected to fall from 4.5 per cent of economic output this year to 2.1 per cent of gross domestic product by the end of the forecast period.
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Some of the other announcements include raising employers’ social security contributions to 15 per cent from April, a major revenue raiser for a Budget the government hopes will kick-start moves to turn around a flagging economy.
Britain’s Labour government has long said those with the “broadest shoulders” should do more to help fix the public finances, which Reeves says were left with a £22 billion black hole by the former Conservative administration. But some companies and the opposition Conservative Party have cried foul, saying the increase could hurt the government’s priority of spurring economic growth by making it more expensive to hire new workers and reduce spending on training.
The 1.2-percentage-point rise in the National Insurance Contributions (NIC) that employers pay, combined with a decision to lower the threshold for when firms start paying to £5,000 from £9,100 per year, is set to be the Budget’s single largest revenue raiser to help fund public services.
“We are asking businesses to contribute more, and I know that there will be impacts of this measure felt beyond businesses... But in the circumstances that I have inherited, it is the right choice to make,” Reeves told parliament.
She said to smooth the move for Britain’s smallest businesses, the government would increase “the Employment Allowance from £5,000 to £10,500”, meaning 865,000 employers would not pay any National Insurance at all next year.
The move is expected to fall entirely on the private sector, with public employers such as government departments and the National Health Service being reimbursed to avoid making cuts.
The increase is expected to raise “£25 billion per year by the end of the forecast period”, said Reeves. This will cover more than half of the £40 billion that she is targeting to cover day-to-day spending with tax revenues.
In the last tax year, employers paid 60 per cent of the £179 billion raised by NICs, which represent the second-largest revenue raiser after income tax.
In a Budget heavy on taxation and borrowing, the opposition Conservative Party said the move on employers’ NIC payments will break Labour’s election promise made before its July landslide election victory that it would not raise taxes on “working people”.
Labour has repeatedly said nothing in its first Budget will break its manifesto pledge, with Prime Minister Keir Starmer promising to protect the pay of those who “(go) out and (earn) their living, usually paid in a sort of monthly cheque”.
Instead, the government says the Budget will help fix Britain’s economic foundations, a first step towards attracting more investment and reforming the country’s overly stretched public services such as the health and criminal justice systems.
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