Rachel Reeves considers ‘stealth tax raid’ to fill £50bn gap in UK finances
Chancellor Rachel Reeves is planning a ’stealth tax raid’ on workers in the next budget as she seeks to fill a £50 billion gap in public finances, according to a report.
The plans will impact workers’ pockets, raising roughly £7 billion a year if maintained until the end of the decade.
The stealth tax raid would generate billions as more workers are pushed into higher tax brackets with frozen thresholds, leading them to pay higher income tax rates despite not receiving real pay rises.
Labour has pledged not to raise taxes on ’working people’ and ruled out increasing income tax rates, making the move highly controversial.
Extending the freeze would contradict Ms. Reeves’ statements at the Budget last year, where she admitted that extending it would ’hurt working people’.
However, extending the freeze now appears to be one of the few options available to the Chancellor to fill the deficit without breaking Labour’s manifesto, a source told The Telegraph.
’There’s ’hot’ and then there’s ’very hot’, and [this option] is on the very hot list,’ the source said.
No decisions have been finalized, but a threshold freeze is said to be preferred over a raid on pensions.
A freeze on income tax thresholds has been in place since being introduced by the Conservatives in 2021.
Higher gambling taxes are also reportedly set to be introduced at Ms. Reeves’ second Budget this autumn, despite extensive lobbying from the industry to protect horse racing from higher levies.
Labour collected a record £100 billion in taxes last month, but there are mounting concerns that the Chancellor is seeking more with public finances in ’chronically weak condition’.
The haul - the highest ever for July - was boosted by Ms. Reeves’ employer national insurance raid. However, that policy is also blamed for making it harder for firms to hire and increasing unemployment.
Labour’s tax hike also resulted in national insurance bringing in an extra £2.6 billion last month compared to last year and £9.5 billion extra for the financial year to date.
It helped the government reduce July’s borrowing – the gap between tax revenues and spending – to a lower than expected £1.1 billion.
That is down from £3.4 billion in July last year. However, total borrowing for the financial year so far, from April to July, is running at £60 billion, £6.7 billion ahead of 2024.
Earlier this month, Sir Keir Starmer was forced to counter suggestions that Ms. Reeves would introduce further tax hikes in the next budget as Labour aims to close the £50 billion gap in public finances.
The Prime Minister said Ms. Reeves would focus on ’living standards’ and ’ensuring that people feel better off’ in Labour’s next fiscal package.
Even as the tax take increases, spending is rising due to pay increases for civil servants and Britain’s soaring benefit bill.
Meanwhile, Britain’s debt pile stands at a staggering £2.89 trillion, or 96 percent of the size of the economy. And the cost of servicing that debt so far this year is £41 billion.
Economists believe the Chancellor will need to raise taxes even further in Autumn.
Conservative business spokesman Andrew Griffith said: ’With the amounts being squeezed out of taxpayers at record highs yet the Chancellor still seeking more, either she quits her addiction to higher public spending, or someone needs to send her to rehab’.
Experts said the public finances remain fragile after reversals on welfare reforms and winter fuel payments disrupted the Chancellor’s plans, and as traders in UK bonds, known as gilts, lose faith in Labour – pushing up the cost of borrowing to levels not seen since the 1990s.
Meanwhile, economic growth is slowing, and doubts are growing about whether Britain’s poor productivity growth – the ability to work more effectively and achieve more per hour – can be restored to the levels needed for a sustainable recovery.
That increasingly likely spells further painful tax increases in October’s budget.
Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said: ’The big picture remains that the public finances are in chronically weak condition.
’The Chancellor faces surging gilt yields and a likely productivity downgrade from the OBR [Office for Budget Responsibility] in the October forecast round.
’The series of policy U-turns has only added to the Government’s fiscal troubles’.
A Treasury spokesman said: ’As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy – which is our focus.
’Changes to tax and spend policy are not the only ways of achieving this, as seen with our planning reforms, which are expected to grow the economy by £6.8 billion and cut borrowing by £3.4 billion.
’We are committed to keeping taxes for working people as low as possible, which is why at last Autumn’s Budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of Income Tax, employee National Insurance, or VAT.
They added: ’The UK’s gambling tax system is outdated and inconsistent, which is why we are consulting to create a level playing field, so all online gambling pays the same rate, working closely with the horse racing sector.
’We have no plans to change the way bets made at the racecourse are taxed, which are exempt from duty.’
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