Anticipation is building around what will be included in Labour Chancellor Rachel Reeves’ first Budget, set to be unveiled on Wednesday. As the first female chancellor in British history, Reeves is preparing to present the Labour Party’s inaugural Budget in a generation, warning that it will involve “difficult decisions” due to what she describes as a £22bn “black hole” left by the previous Conservative government.
Paul Johnson, director of the Institute for Fiscal Studies (IFS), has already forecasted that this may be one of the largest tax-raising Budgets on record. Despite the anticipated tax increases, Johnson cautions that “a lot of public services still [will feel] squeezed.” Here, we examine eight key areas likely to be addressed.
1. Tax Increases
Ms Reeves is expected to introduce a rise in employer National Insurance (NI) contributions. While Labour pledged not to raise NI rates before the election, this commitment applies only to employees, not employers. Critics argue that increasing NI for employers amounts to a “tax on jobs,” accusing ministers of going back on their promises.
Additionally, the chancellor is likely to continue the freeze on income tax thresholds, meaning that as inflation rises, more people will be pushed into higher tax brackets, effectively increasing the tax burden over time.
2. Borrowing and Debt
To finance major infrastructure projects, Ms Reeves has adjusted her debt rules, giving her access to an estimated £50bn in additional borrowing. This funding is expected to go towards infrastructure projects like road, rail, and hospital improvements.
However, former Bank of England governor Mervyn King has expressed caution over this increase in borrowing. Speaking on Sky News’ Sunday Morning With Trevor Phillips, King explained that while the borrowing might not immediately impact the Bank of England’s actions, it “certainly will put some upward pressure on long-term interest rates,” making government debt more expensive over time.
3. Inheritance Tax
Despite affecting only a small proportion of the population, inheritance tax remains a contentious issue. Ministers are reportedly considering reforms to increase revenue, potentially by adjusting current exemptions to broaden the tax’s reach.
4. Fuel Duty
Fuel duty, which has not been raised in over a decade, has attracted calls for restraint amid concerns over rising living costs. However, any increase would likely face significant public backlash.
5. Winter Fuel Payments
The government’s proposal to means-test winter fuel payments for pensioners has sparked criticism, with opponents warning that the policy could adversely affect low-income pensioners this winter. Concerns have been raised that the change may leave vulnerable pensioners without essential support in the colder months.
6. VAT on Private Schools
In a move aimed at increasing tax revenue, the government plans to remove the VAT exemption for private schools, introducing a 20 per cent VAT charge from January. However, the Budget is expected to exempt military families, who often face frequent relocations, from this measure.
7. Education Funding
Ms Reeves has pledged to prioritise education and childcare in the Budget, promising £1.4bn to repair deteriorating schools. Additionally, £1.8bn will go towards expanding government-funded nursery care, with plans for all children over nine months to qualify for 30 hours of ‘free’ childcare from next September.
8. Health Sector Support
The NHS is expected to receive a funding boost, with Health Secretary Wes Streeting set to secure an increase exceeding the current inflation rate. Sources suggest the Department for Health and Social Care will receive around four per cent – or between £7bn and £8bn – while inflation is currently at 1.7 per cent. Nevertheless, there are concerns that even this substantial sum may not suffice to implement the sweeping reforms needed in the struggling health service.
With Ms Reeves’ Budget, Labour is signalling a shift in fiscal priorities after years of Conservative governance. Whether these measures will balance the books and address pressing public sector needs remains to be seen.
