The Tories today angrily accused Labour of ‘breaking their promises’ from before the general election as a Cabinet minister refused to rule out tax hikes.
Steve Reed, the Environment Secretary, said the Government was ‘not going to shy away from difficult decisions’ as he was quizzed over possible tax changes.
He did not dismiss claims that Labour could raise inheritance tax or capital gains tax, or slash tax relief on pensions.
Mr Reed branded Labour’s inheritance from the previous Tory government as ‘catastrophic’ and swiped there had been a ‘cover up’ of Whitehall problems.
Chancellor Rachel Reeves is tomorrow set to outline a £20billion ‘black hole’ in the public finances and is expected to argue Britain is ‘broke and broken’.
But senior Conservatives disputed Labour’s claims about the state of the public finances and have accused Ms Reeves of using it as a ‘pretext’ for planned tax rises.
The Treasury has reportedly drawn up proposals to equalise capital gains tax with income tax and cut pension tax relief for middle-class workers, among options for Ms Reeves ahead of her first Budget in the autumn.
Chancellor Rachel Reeves, spotted out jogging in St James’s Park this morning, is tomorrow set to outline a £20billion ‘black hole’ in the public finances
Senior Conservatives have disputed Labour’s claims about the state of the public finances and accused Ms Reeves of using it as a ‘pretext’ for planned tax rises
Steve Reed, the Environment Secretary, said the Government was ‘not going to shy away from difficult decisions’ as he was quizzed over possible tax changes
Shadow chancellor Jeremy Hunt claimed Ms Reeves raising taxes would amount to ‘the biggest betrayal’ ever by a Chancellor in their first Budget.
Labour has ruled out raising income tax, VAT, national insurance and corporation tax, but this has left potential changes to pensions relief, capital gains or inheritance levies on the table.
Appearing on Sky News this morning, Mr Reed was asked if he could rule out changes to inheritance tax, capital gains tax or pensions.
‘Well, I don’t see the benefit in speculating when we don’t even know the full scale of the problem yet,’ the Environment Secretary replied.
Pressed again on whether he would rule out possible changes, he added: ‘We’re not going to shy away from difficult decisions.
‘But the core of what we want to do is not to increase taxation. It’s to grow the economy.
‘Because that way you can get the income that we need without recourse to taxation. And our view is the Conservatives have overtaxed the country.’
According to The Telegraph, the Treasury will present Ms Reeves with options to equalise capital gains tax and income tax rates, and to cut pension tax relief for middle-class workers.
The highest rate of capital gains tax is 28 per cent, compared to the top rate of income tax of 45 per cent.
It has been estimated that equalising the rates could raise as much as £16.7billion a year, while another £2.7billion could be raised by introducing a flat rate of tax relief on pensions contributions of 30 per cent.
This would reduce the tax relief available to higher-rate taxpayers, currently at 40 per cent on earnings over £50,000 and 45 per cent on earnings over £125,000.
Shadow chancellor Jeremy Hunt told the newspaper that Ms Reeves raising taxes would amount to ‘the biggest betrayal’ ever by a Chancellor in their first Budget.
‘If having deliberately not told the country what they were planning before the election they then put up taxes, it will be the biggest betrayal by a Chancellor in her first budget that we have ever seen,’ he said.
Mr Hunt added that Labour would ‘not have the legitimacy or the mandate to increase taxes, because they weren’t honest with us before the election that that was what they wanted to do’.
It has separately been reported that Ms Reeves could raise up to £4billion by ending the long-running freeze on fuel duty.
Ms Reeves is expected to approve above-inflation pay rises for millions of public sector workers in response to the recommendations of independent pay review bodies.
Teachers and some 1.3 million NHS staff could be in line for a 5.5 per cent pay boost, which could cost about £3.5billion more than had been budgeted for.
Economists believe this could rise to about £10billion if other pay review bodies give similar advice on workforces such as police and prisons officers and doctors and dentists.
The Chancellor could also delay a string of key hospital and road schemes she will argue are ‘unfunded with unfeasible timelines’ to plug a shortfall in the public accounts, it has been reported.
John Glen, the shadow paymaster general who was chief secretary to the Treasury prior to the general election, claimed Labour were preparing to squeeze working people with tax rises.
He told Sky News: ‘To govern is to make tough decisions and to say no.
‘And to get ministers to actually come to terms with taking those tough decisions around reform, actually delivering, better and with real constraints.
‘What they’re trying to say is they need more money and they’re going to break all their promises.
‘They’re going to raise taxes and obviously, the papers are full of speculations over what they will be.
‘And, you know, particularly for working people, working people have pensions and investments.
‘So my point is, in my eight years, most of the last eight years, I’ve been involved in the Treasury. Every fiscal event involves pressures.
‘But you have to work out how you’re going to push back on some of them and how you have to prioritise.
‘I mean, there were many of my colleagues who wanted bigger tax cuts. And we didn’t put bigger tax cuts through because we couldn’t afford them. And there was always a balance there.’
