LONDON (Reuters) -British finance minister Rachel Reeves said she would raise taxes by 40 billion pounds a year ($52 billion) in her first budget, as she accused the previously ruling Conservative Party of leaving public services broken after their 14 years in power.
Reeves said a 22 billion-pound shortfall in the public finances inherited by the Labour Party when it came to power in July had been compounded by the lack of compensation payments, including for victims of an infected blood scandal, and under-funding of public services.
“Any Chancellor standing here today would face this reality,” Reeves said in her budget speech.
“And any responsible Chancellor would take action. That is why today, I am restoring stability to our public finances and rebuilding our public service.”
According to the Institute for Fiscal Studies think-tank, tax hikes of 40 billion pounds would be equivalent to 1.25% of economic output, surpassed in recent history only in 1993 by a budget plan under the Conservatives which raised taxes to shore up the public finances after a recession and currency crisis.
Reeves also said Britain’s economy was forecast to grow by more than expected this year and in 2025 but by less than previously forecast in the following three years.
Reeves was likely to announce changes to the government’s budget rules to allow her to borrow more to invest in infrastructure and accelerate Britain’s economic growth pace.
Bond strategists say they are confident that Reeves – a former Bank of England economist – will be more cautious than former Prime Minister Liz Truss, whose big tax-cut plans hammered British debt prices in 2022 and led to her resignation.
Labour has also promised voters it will cut long waiting lists in the state-run health service, build more housing and improve schools, but it will fund the higher spending on public services principally via tax increases, not higher borrowing.
Prime Minister Keir Starmer has said “those with the broadest shoulders” will have to pay more tax.
Companies face higher social security costs which, 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.
The richest Britons are likely to face higher tax bills on capital gains, dividends, inheritances and wealth held abroad, pushing up further the country’s tax burden which is already the highest since shortly after World War Two.
Reeves has not ruled out making more individuals pay basic and higher income tax rates, extending a tax policy introduced by the Conservatives after the COVID pandemic.
($1 = 0.7730 pounds)
(Writing by William Schomberg; Editing by Hugh Lawson)
