UK Chancellor of the Exchequer Rachel Reeves announced a £40 billion tax increase on Monday, aimed at addressing the country’s public finance deficit and enhancing funding for essential services. This marks the Labour Party’s first budget since regaining power earlier this year.
In her comprehensive budget statement, Reeves allocated an additional £25 billion to the National Health Service (NHS) to tackle record-high waiting lists exacerbated by the Covid-19 pandemic.
“The choices I’ve made today are the right choices for our country,” she stated. “They are intended to restore stability to our public finances, protect working people, fix our NHS, and rebuild Britain.”
Reeves attributed the need for this substantial tax rise to the economic “black hole” left by the previous Conservative administration. Labour, which returned to power on July 4 after 14 years in opposition, promised to end political instability and foster economic growth.
Key measures to raise revenue include a 1.2 percentage point increase in employer social security contributions, which will raise the rate to 15% starting in April, with the payment threshold lowered. This change is expected to generate £25 billion annually over the next five years.
Despite the tax hikes, Reeves stated that basic and higher income tax rates would not increase until at least 2028-29. She also announced an extension of the fuel duty freeze and a reduction in the tax on draught beer served in pubs.
Additionally, changes were introduced to capital gains and inheritance taxes, targeting private equity managers and non-domiciled residents, aligning with Prime Minister Keir Starmer’s commitment that “those with the broadest shoulders” should contribute more.
However, business leaders have expressed concerns that rising costs from increased employer taxes, new worker protections, and a higher minimum wage could hinder Labour’s goal of making the UK the fastest-growing economy in the G7.
Reeves reassured lawmakers of her commitment to fiscal responsibility, emphasizing that the government would avoid excessive borrowing, especially in light of previous market reactions to unfunded Conservative tax cuts.
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