October 31, 2024, 08:34

Rachel Reeves admitted the budget was likely to hit workers’ wages, as she defended the tens of billions in tax increases announced yesterday.

The Chancellor told LBC’s Nick Ferrari at breakfast that she had to make difficult choices in the Budget she presented to the House of Commons yesterday.

Ms Reeves announced £40 billion of tax rises on Wednesday, including a £25.7 billion increase in employers’ national insurance contributions.

The choices made by Ms Reeves will see the overall tax burden reach a record level of 38.3% of gross domestic product (GDP) in 2027-2028, the highest since 1948.

Labor said this did not break its election promise to raise taxes on “working people” – but economists predict businesses paying more will likely have a knock-on effect on wages.

Budget watchdog the Office for Budget Responsibility (OBR) said average real household disposable income would be around £300 per person lower as a result of the Budget.

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Ms Reeves told Nick: “I was faced with a situation before this Budget with a huge black hole in the public finances.

“Now I could have swept it all under the rug, dealt with it, a little bit every now and then and come back in a year and ask people to pay a little bit more next year.

She said she instead wanted to be “open, honest and transparent” about the importance of bringing “stability” to the economy.

“To achieve this we had to raise money yesterday. There are now choices about how to do this, and the choice could have been to increase income tax, workers’ national insurance or VAT .

“I think it would have been a bad decision, given all the challenges that families have had over the last few years with their finances, with the cost of living crisis.

“So I have asked businesses to pay more, I recognize that this could lead to slower wage growth than might otherwise have happened, but overall forecasters are saying yesterday that real household disposable income will increase during this legislature, that unemployment is we will afford and employment will increase.

Ms Reeves also plans to invest more public money in schools, hospitals, transport and housing, and will change the way public debt is measured to allow greater borrowing flexibility.

The OBR predicted, however, that these measures were unlikely to lead to the long-term boost to economic growth desired by the government.

Ms Reeves told Nick that the OBR’s growth forecasts “are not the pinnacle of my ambitions”, insisting that “we are making the long-term decisions to put our country on a better path”.

The Institute for Fiscal Studies (IFS), an influential economic think tank, has said it may need to raise taxes again in the future if its “bets” on spending do not translate into a growth.

Ms Reeves does not rule out raising taxes again in the future.

In Wednesday’s Budget announcement, the Chancellor also chose to earn a penny off a pint at the pub, increase Carer’s Allowance and the National Living Wage, as well as inject £22.6 billion into the day-to-day running of the NHS.

Watch again: Nick Ferrari is joined by Conservative leadership candidate Kemi Badenoch | 10/31/24

The Chancellor also confirmed a notable increase in capital gains tax as part of Wednesday’s announcement.

This came despite fears she would seek to end the freeze to raise funds in the Budget, after warning of a £22 billion hit.

As part of the budget, Rachel Reeves chose to extend the fuel tax freeze as part of her announcement, allaying fears that motorists would have to pay higher taxes at the pump.

Ms Reeves said she would maintain the freeze on fuel duty, in place since 2011, as well as maintaining the 5p cut introduced by the Conservatives in 2022 for another year.

The budget also saw Reeves increase the national living wage. Employees aged 21 and over will see their pay rise from £11.44 an hour to £12.21.

For those aged 16 or 17, the minimum wage will increase from £6.40 an hour to £7.55. 18-21 year olds will also see the national minimum wage increase, from £8.60 an hour to £10 an hour.