The first woman to deliver a budget, UK Chancellor Rachel Reeves, has unveiled a Labour budget plan which seeks to rectify the country’s economic base and enhance its public coffers by increasing taxes by £40 billion. The last Labour budget was presented in 2010.
Ms Reeves acknowledged that a significant hike in taxes was unavoidable due to the vast budgetary shortfall created by the Conservative administration. The damaging impact on public spending exceeded prior assumptions, she said.
She stated that the Tories’ £22 billion deficit in the current year’s finances indicated their cover-up of true public expenditure plans and projected recurring issues in upcoming years.
The Chancellor also committed to allocating £11.8 billion as restitution for those impacted by the contaminated blood crisis and £1.8 billion for the victims of the Post Office Horizon scandal.
Ms. Reeves stressed that the consistent deficit in public finances, failure to budget for compensation payments, and lack of assessment of public services challenges call for a £40 billion tax increase.
A responsible Chancellor has the duty to act, she said, and as such she aims to restore the country’s fiscal stability and reconstruct public services.
Ms. Reeves also disclosed plans for a £25 billion charge on employers’ national insurance contributions by increasing rates and reducing the initial salary limit. The rate will rise by 1.2% up to 15% effective from April 2025, with payments applying to employees earning £5,000, a decrease from the current £9,100 threshold.
Recognising its difficulty, she assured that this decision was not taken lightly.
Capital gains tax will rise by £2.5 billion as the Chancellor has confirmed increases to the lower rate from 10% to 18% and the upper rate from 20% to 24%.
Changes to inheritance tax were also confirmed, which include including pension pots within taxation from April 2027, and alterations to agricultural and business property reliefs to raise a total of £2 billion annually.
The projections issued by the UK’s Office for Budget Responsibility reveal a higher GDP growth for 2024, contrary to previous forecasts made in March, moving up from 0.8% to 1.1%, and an increased projection from 1.9% to 2.0% for 2025. Nonetheless, subsequent years predict a slump in growth with 2026 expecting a reduction from 2% to 1.8%, a drop from 1.8% to 1.5% in 2027, and a decrease from 1.7% to 1.5% in 2028.
In the realm of other financial measures, there will be a persistent freeze on fuel duty, which includes the preservation of the current 5p reduction. Furthermore, starting October 2026, a standard duty will be imposed on all vaping fluid, as well as an unprecedented rise in tobacco duty to deter individuals from smoking. The levy on the soft drinks industry will undergo an increment to adjust for inflation, and despite an increase in the alcohol duty rates for non-draught products in accordance with RPI inflation, draught duty will see a 1.7% cut, effectively reducing the pub cost of a pint by a penny.