Reeves won’t rule out extending income tax threshold freeze
Rachel Reeves has vowed not to repeat the scale of tax rises in last year’s Autumn Budget as businesses brace for further hikes to meet the chancellor’s wafer-thin fiscal headroom.
As much as £40bn in tax rises was unveiled in the budget, including huge hikes to employer National Insurance Contributions, which added millions of pounds to employer wage bills. Despite Reeves’ pledge in October that the move was a “one-off”, economists have projected that more than £10bn of extra tax rises will be needed to meet the Treasury’s tight fiscal rules.
“I have absolutely no intention of repeating a budget of that scale again. That budget was absolutely necessary,” Reeves said on Wednesday.
But the chancellor did not address whether she will stand by her promise to unfreeze income tax thresholds from 2028, when asked.
If thresholds are not unfrozen, up to 1.9m workers will see themselves fall into higher tax brackets by 2030, as bands no longer keep up with inflation. The “stealth tax” is projected to earn the government £8.9bn, but is likely to be met with outrage by taxpayers.
How will everything be paid for?
In a speech on Wednesday morning, the chancellor released further details on the upcoming spending review, centered around a £15.6bn injection into regional transport.
Reeves erred on the side of caution regarding future commitments, saying “If the money’s not there,” Reeves said, any promises are “not real.”
In that vein, when questioned on how the government will fund the rumored scrapping of the two child benefit cap, and the confirmed u-turn on winter fuel payment cuts, Reeves said details would be unveiled plans in the Autumn Budget.
Reeves promised that plans will be in place so that “pensioners are paid this coming winter,” and that the government is “determined to reduce child poverty as a moral mission.”
Fiscal rules are ‘non-negotiable’
Reeves said that the government can spend “£190bn more on day to day spending compared to the plans we inherited,” and “£113bn more on capital spending” in the spending review as a result of the difficult tax rises brought about by the last Autumn Budget.
Manifesto promises around housing, policing, and energy are not on the cutting board despite waning fiscal headroom, as these were “fully costed and fully funded,” Reeves said.
Reeves confirmed reports that she has asked several departments to lower their ambitions in the following years as part of spending review negotiations. “There are good things that I’ve had to say ‘no’ to” she said, as “it is important to have control of the public finances.”
“When I say the fiscal rules are non-negotiable, it’s not a matter of pride for me … it’s about protecting working people,” Reeves said.
Tories accuse Reeves of ‘copying and pasting’
Shadow Treasury Minister Gareth Davies said Reeves “needed to do better than copying and pasting announcements made by the previous Conservative Government.”
Davies said Reeves is “scrambling” to adjust to the Prime Minister’s u-turns which are “punching holes in her credibility.”
At Prime Minister’s Questions on Wednesday Tory leader Kemi Badenoch put it to Starmer that Reeves will have to raise taxes in the next Budget, something the PM declined to rule out.