Fears are mounting about looming tax hikes for Brits after Rachel Reeves raided pensioners and warned of pain to come in the Budget.
The Chancellor has been defending her extraordinary political gamble after claiming the Tories had left a £22billion black hole in the finances.
She used the accusation as cover to effectively tear up Labour‘s election platform – stripping winter fuel payments from 10million pensioners, ditching the long-awaited social care cap, and shelving major road projects.
Critics pointed out that nearly half of the alleged funding gap was down to Ms Reeves deciding to ‘cave in’ to union demands for public sector pay rises, with an eye-watering 22 per cent over two years for striking junior doctors and 5 per cent for many other workers.
However, the Treasury review revealed that even after the emergency action Ms Reeves there is still a £16.4billion gulf in the books.
Chancellor Rachel Reeves took an extraordinary political gamble yesterday as she claimed the Tories had left a £22billion black hole in the finances
Jeremy Hunt pointed out that nearly half of the alleged funding gap was down to Ms Reeves deciding to ‘cave in’ to union demands for public sector pay rises
The tax burden is already running near a post-war record high
Keir Starmer has ruled out changes to the main rates of income tax, national insurance and VAT.
The Labour manifesto committed to scrapping non-dom status, adding VAT to private school fees and increasing stamp duty on buyers from abroad.
But that was offset by extra spending, with the party estimating they would bring in £2.5billion by 2028.
Another option to bring in cash could be inheritance tax. The Treasury’s ‘ready reckoner’ indicates that increasing the headline IHT rate from 40 per cent to 45 per cent could bring in an extra £1billion.
She could come under pressure to clobber more than 30million drivers to help plug the gap, potentially by allowing the 5p fuel duty cut to expire next March.
The reduction was introduced in March 2022 by then-Chancellor Rishi Sunak to ease the cost-of-living burden on families amid soaring oil prices.
But prices at the petrol pumps have since fallen significantly, and Ms Reeves could look at restoring the link between duty and inflation for future years.
The previous Tory government froze the Fuel Duty Escalator for 14 years, meaning the levy remained 57.95p a litre between 2011 and 2022 and has been 52.95p since the 5p cut.
Analysis shows the successive freezes have been worth at least £80billion to drivers collectively.
Reversing the 5p cut and allowing the Escalator to rise with inflation would add about £100 to the annual fuel bill of the average driver, of which there are around 33million in the UK.
It could net the Treasury as much £4billion extra a year in tax receipts.
Officials have also drawn up plans to equalise the 28 per cent top rate of capital gains tax with the 45 per cent top rate of income tax – which some believe could net the Exchequer a huge £16billion a year.
One other frequently mooted change would be to downgrade relief on pensions savings for up to 6million higher earners.
In a round of interviews this morning, Ms Reeves said she was ‘bringing responsibility back’ to government.
‘I was clear during the general election campaign that I will never make a promise without being able to say where the money is going to come from,’ she said.
‘I’m not going to change that now that I’m Chancellor of the Exchequer.
‘It’s really important for me that we have sound money, that we have sound public finances.
‘And after the last 14 years of chaos and irresponsibility, I am bringing responsibility back to our public finances and back to public spending. And I began that work yesterday.”
In a crucial House of Commons statement yesterday, the Chancellor accused the Tories of leaving the government’s books in an ‘even worse’ state than she feared.
Pointing to sky-high spending on policies such as the Rwanda scheme, Ms Reeves said the reserve had been ‘exhausted’ and decisions on pay awards had been ‘ducked’.
Asylum system costs were £6.4billion over budget this year, while transport was £1.6billion over, and support for Ukraine was also not fully funded.
She laid out plans to slash road projects – including shelving a long-awaited tunnel under Stonehenge – and make departments find savings.
But Ms Reeves argued that was not enough, saying she had no choice but to strip all pensioners who do not receive pension credit – around 10million people – of winter fuel payments worth up to £300. That will save the government £1.5billion.
In a crucial House of Commons statement yesterday, the Chancellor accused the Tories of leaving the government’s books in an ‘even worse’ state than she feared
The long-awaited cap on social care costs will be put on ice rather than taking effect in 2025, as Wes Streeting had promised would happen.
VAT will be applied to private school fees from January 1 next year – earlier than had been anticipated. Anyone paying fees in advance after today will also be hit with the levy.
Despite the dire warnings Ms Reeves has accepted pay recommendations in full – giving the green light for inflation-busting rises for public sector workers, at an estimated cost of £9.4billion.
Junior doctors have been offered a package worth a whopping 22 per cent over two years to settle their dispute.
The pay splurge spark concerns about fuelling inflation, potentially making it less likely that the Bank of England cuts interest rates this week.
