Finance minister Rachel Reeves has said the tax hike will be used to fund public services and bolster public finances.
British Chancellor of the Exchequer Rachel Reeves has told lawmakers that taxes will rise by 40 billion British pounds ($52bn) in order to plug a hole in the public finances and provide new funding for the United Kingdom’s cash-starved public services, in a wide-ranging budget statement that could set the tone for years to come.
In the Labour Party’s first budget since returning to power earlier this year after 14 years in opposition, Reeves said she was also changing the UK’s rules so the government can “invest, invest, invest” and spur economic growth.
Her biggest cash commitment was an additional 25 billion pounds ($32.5bn) for the country’s National Health Service, which has seen waiting lists rise to record levels in the wake of the coronavirus pandemic.
“The choices that I have made today are the right choices for our country,” Reeves said at the end of her statement on Monday. “To restore stability to our public finances. To protect working people. To fix our NHS. And to rebuild Britain.”
Reeves said the tax hike, which in large part comes from an increase in the tax businesses pay for employing people, is needed because of the economic “black hole” left by the previous Conservative government.
Her centre-left party was elected on July 4 after promising to banish years of turmoil and scandal under Conservative governments, get Britain’s economy growing and restore frayed public services.
Reeves has said she will not let public debt balloon, mindful of how former Conservative Prime Minister Liz Truss sent the bond market into a tailspin two years ago with unfunded tax cut plans.
She also announced that she would raise the rate of social security contributions paid by employers by 1.2 percentage points to 15 percent from April next year, and lower the threshold at which firms start to pay it – moves which would raise an extra 25 billion pounds ($32.5bn) a year over five years’ time.
Company bosses have warned that higher taxes on them, combined with planned new protections for workers and an increased minimum wage, could undermine Labour’s promises to turn Britain into the fastest-growing Group of Seven economy.
Reeves announced a string of other revenue-raising moves including changes to the tax rules on capital gains and inheritances and tax paid by private equity executives and non-domiciled residents.
Prime Minister Keir Starmer had warned “those with the broadest shoulders” would have to pay more tax.
But Reeves ruled out making more individuals pay basic and higher income tax rates after a freeze on the threshold for payments expires in the 2028-29 tax year.
She also extended a freeze on fuel duty and cut a tax on draught beer served in pubs.
