Reeves hikes taxes by £40bn to address ‘black hole’ in public finances
Chancellor Rachel Reeves set out a Budget which will increase taxes by £40 billion as she promised to “fix the foundations” of the economy and repair the public finances.
In the first Labour Budget since 2010 – and the first ever delivered by a woman – Ms Reeves promised to “invest, invest, invest”.
But she said the “black hole” left by the Conservatives requires tens of billions of additional taxes.
Devolved setttlements
Regions in Scotland and Northern Ireland will receive new growth deals, the Chancellor has said.
Rachel Reeves told the Commons: “To support growth, including in our rural areas, we will proceed with city and growth deals in Northern Ireland – in Causeway Coast and Glens, and Mid South West. And we will drive growth in Scotland, a key priority for Scottish Labour and our leader Anas Sarwar, including a city and growth deal in Argyll and Bute.
“This Budget provides the devolved governments with the largest real-terms funding settlement since devolution, delivering an additional £3.4 billion for the Scottish Government through the Barnett formula, funding which must now be spent effectively to improve public services in Scotland.”
Turning to Barnett consequentials for Cardiff Bay and Stormont, the Chancellor said: “This budget also provides £1.7 billion to the Welsh Government and £1.5 billion to the Northern Ireland Executive in 2025-26.”
She had earlier announced £25 million for the Welsh Government “next year for the maintenance of coal tips to ensure we keep our communities safe”.
“Black hole”
Ms Reeves claimed the scale of the public spending problems she inherited were worse than previously thought.
She said the £22 billion “black hole” left by the Tories in this year’s finances showed they “hid the reality of their public spending plans”, with problems recurring in future years.
Ms Reeves also promised to set aside £11.8 billion to compensate those affected by the infected blood scandal and £1.8 billion to compensate victims of the Post Office Horizon scandal.
HS2
The Chancellor has vowed to “get a grip” on HS2 between London and Birmingham, as she committed to start funding tunnelling work between Euston and a new station in west London.
“Today, we are securing delivery of the project between Old Oak Common and Birmingham, and we are committing the funding required to begin tunnelling work to London Euston station, catalysing private investment into the local area,” she told MPs.
Turning to roads investment, the Chancellor added: “For too long, potholes have been an all too visible reminder of our failure to invest as a nation.
“Today, that changes, with a £500 million increase in road maintenance budgets next year, more than delivering on our manifesto commitment to fix an additional one million potholes per year.”
Green hydrogen
The Chancellor has unveiled plans for 11 new green hydrogen projects in addition to GB Energy and the Government’s investment into carbon capture and storage.
Rachel Reeves told the Commons: “Earlier this month, we announced a significant multi-year investment between Government and business into carbon capture and storage, creating 4,000 jobs across Merseyside and Teesside.
“Today, I am providing funding for 11 new green hydrogen projects across England, Scotland and Wales – among the first commercial-scale projects anywhere in the world – including in Bridgend, East Renfrewshire and in Barrow-in-Furness.
“We are kick-starting the Warm Homes Plan by confirming an initial £3.4bn over the next three years to transform 350,000 homes, including a quarter-of-a-million low-income and social homes.
“And we will establish GB Energy, providing funding next year to set up Great British Energy at its new home in Aberdeen.”
“Restoring stability”
The Chancellor said: “Together, the black hole in our public finances this year, which recurs every year, the compensation payments which they did not fund and their failure to assess the scale of the challenges facing our public services means this Budget raises taxes by £40 billion.
“Any Chancellor standing here today would face this reality. And any responsible Chancellor would take action.
“That is why today, I am restoring stability to our public finances and rebuilding our public services.”
She confirmed a £25 billion raid on employers’ national insurance contributions, with higher rates and a lower starting threshold.
The rate will increase by 1.2 percentage points to 15% from April 2025, with payments starting when an employee earns £5,000, down from the current £9,100.
“I know that this is a difficult choice. I do not take this decision lightly,” Ms Reeves said.
The Chancellor announced a £2.5 billion increase in capital gains tax by increasing the lower rate from 10% to 18% and the higher rate from 20% to 24%.
She also confirmed changes to inheritance tax, including bringing pension pots within the tax from April 2027, and reforms to agricultural and business property reliefs, raising a total of £2 billion a year.
Ms Reeves, who stressed she was committed to helping “working people”, promised to end the freeze on income tax and national insurance thresholds.
As earnings increase, maintaining the threshold freeze would have seen more people dragged into paying tax or shifted into higher bands.
“From 2028-29, personal tax thresholds will be uprated in line with inflation once again,” she said.
“When it comes to choices on tax, this Government chooses to protect working people every single time.”
The Office for Budget Responsibility’s forecast suggested gross domestic product growth will be higher in 2024 than expected in March – upgrading it from 0.8% to 1.1% and from 1.9% to 2.0% in 2025.
But there are downgrades in subsequent years – down from an expected 2% in 2026 to 1.8%, from 1.8% in 2027 to 1.5% and from 1.7% in 2028 to 1.5%.
In other measures:
– The freeze on fuel duty will continue, including maintaining the existing 5p cut.
– A flat rate of duty will be applied on all vaping liquid from October 2026 alongside an additional one-off increase in tobacco duty to encourage people to give up smoking.
– The soft drinks industry levy will be increased to account for inflation.
– While alcohol duty rates on non-draught products will increase in line with RPI inflation, draught duty will be cut by 1.7%, knocking a penny off a pint in the pub.
– The Government will commit the funding required to extend the HS2 high-speed rail line to Euston in central London.
– There will be “over £5 billion of Government investment” in housebuilding, with £1 billion to strip dangerous cladding from buildings.
– The stamp duty land tax surcharge for second homes will increase by two percentage points to 5% from Thursday.
– The weekly earnings limit for carers allowance will rise to the equivalent of 16 hours a week at the national living wage, the largest increase since the allowance was introduced.
– Government departments will be required to meet a 2% “productivity, efficiency and savings target”.
– There will be a £22.6 billion increase in the day-to-day health budget as well as a £3.1 billion increase in the capital budget, which Ms Reeves called the “largest real-terms growth in day-to-day NHS spending outside of Covid since 2010”.
– Ms Reeves promised £1.4 billion to rebuild more than 500 schools as part of a 19% real-terms increase in the Department for Education’s capital budget, along with £2.1 billion for school maintenance.
– The Chancellor promised to save £4.3 billion a year from the cost of welfare y tackling fraud and recovering debt.
“Responsible”
Chancellor Rachel Reeves took around 77 minutes to deliver her Budget.
In her concluding remarks, Ms Reeves told the Commons: “The choices that I have made today are the right choices for our country – to restore stability to our public finances, to protect working people, to fix our NHS and to rebuild Britain.
“That doesn’t mean these choices are easy, but they are responsible. If the party opposite disagrees with the choices that I have made then they must answer: What choices would they make?
“Would they again choose the path of irresponsibility – the path taken by Liz Truss – and ignore the problems in our public finances altogether? If that is their choice, they should say so.
“But let me be clear, if they disagree with my choices on tax then they would not be able to protect working people. If they disagree with our plans to fund public services then they would have to cut schools and hospitals, and if they disagree with our investment rule then they would have to delay or cancel thousands of projects which drive growth across our country.
“This is a moment of fundamental choice for Britain. I have made my choices. The responsible choices: to restore stability to our country, to protect working people, more teachers in our schools, more appointments in our NHS, more homes being built, fixing the foundations of our economy, investing in our future, delivering change, rebuilding Britain.”
Support our Nation today
For the price of a cup of coffee a month you can help us create an independent, not-for-profit, national news service for the people of Wales, by the people of Wales.
Barnet consequential is based on population. 84% Eng, 8% Scot, 5% Wales, 3% NI. So the if Scotland is boosted by £3.4billion and NI by 1.5billon. The boost to Wales should be £1.9billion not short changed at £1.7billion. Clarification is needed on what this boost is for. It could be police budget which is not devolved to Wales. Otherwise it’s ‘cash for votes’ to Scotland.
I see they are going to fund a couple of more billion for H S 2 Tunneling to Euston sod all for Wales Railway like what Scotland and Northern Ireland had for H S 2 a couple of billion each short changed by Labour same as The Tories did
You can’t just remove £40bn from the economy and pretend it won’t matter. private sector creates the wealth in a country, FACT.
Taxing private jets is just a socialist knee jerk Labour wolf signal, it will bring in a tiny amount but signal the UK hates billionaires.