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Reeves unveils historic £40bn tax rises in first Budget This is not a Budget we want to repeat, says Reeves
(about 2 hours later)
Chancellor Rachel Reeves has announced a massive £40bn package of tax increases to fund the NHS and public services in Labour’s first Budget for 14 years. Rachel Reeves: Budget will put public finances on firm footing
But she insisted “working people” would not see an increase in income tax, National Insurance or VAT, fulfilling a promise made by Labour at the general election. Chancellor Rachel Reeves has told the BBC that she hopes Labour's first Budget since taking power, which includes massive tax increases, would be a one-off.
Employers will take the biggest hit – with an increase in National Insurance contributions on their workers’ earnings which will raise up to £25bn a year for the government. "This is not the sort of Budget we would want to repeat," she told the BBC's political editor Chris Mason.
Conservative leader Rishi Sunak accused Reeves of breaking her promises to workers and “hobbling” economic growth. "But this is the Budget that is needed to wipe the slate clean and to put our public finances on a firm trajectory."
Employers will bear the brunt of the £40bn in tax rises unveiled earlier by Reeves - the biggest increase in a generation.
She insists it is needed to plug a £22bn "black hole" in the nation's finances she inherited from the Conservatives and to invest in the NHS and other public services.
In a marathon 76 minute speech which outlined a change in priorities from Conservative predecessors, the first female chancellor outlined big spending and tax decisions.
She said Labour would fulfil its promise to voters in July's election to “invest, invest, invest” to "drive economic growth".
But the government's promise to make the UK the fastest growing economy in the developed world have been undermined by its own financial watchdog.
The Office for Budget Responsibility said the package of economic measures unveiled by Reeves would ultimately "leave GDP largely unchanged in five years".
Asked about the underwhelming forecasts, she said: "I absolutely accept this is not summit of my ambitions. I want the economy to grow faster than this."
She added that the “growth numbers this year and next year are being revised up and that’s good news”.
The OBR says the economy will grow by 2% in 2025, up 0.1% in its previous forecast, but it will drift down in subsequent years to 1.5% in 2028.
In her Budget speech, Reeves said “working people” would not see an increase in income tax, National Insurance or VAT, fulfilling a promise made by Labour at the general election.
Instead, employers will see an increase in National Insurance contributions on their workers’ earnings which will raise up to £25bn a year for the government.
There will also be an increase to capital gains tax on share sales and a freeze on inheritance tax thresholds.
In his response to the Budget, Conservative leader Rishi Sunak accused Reeves of “hobbling” economic growth.
“They’re taxing your job, they’re taxing your business, they’re taxing your savings. You name it, they’ll tax it," Sunak told MPs in his final Commons appearance as leader of the opposition.“They’re taxing your job, they’re taxing your business, they’re taxing your savings. You name it, they’ll tax it," Sunak told MPs in his final Commons appearance as leader of the opposition.
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But Reeves claimed any “responsible chancellor” would have been forced to do the same to “fix the foundations” of the economy.But Reeves claimed any “responsible chancellor” would have been forced to do the same to “fix the foundations” of the economy.
In a marathon 76 minute speech, she said Labour would fulfil its promise to voters in July's election to “invest, invest, invest” to "drive economic growth". Her Budget - the first Labour economic statement since 2010 - sees the second biggest increase in taxes in UK history.
Labour had said that their number one “mission” was growth - and that they would achieve the highest rate of growth of any G7 country within five years.
However, the Office for Budget Responsibility's assessment was that the package of economic measures ultimately "leave GDP largely unchanged in five years".
Labour's first Budget since 2010 sees the second biggest increase in taxes in UK history.
As measured by amount of tax raised relative to the size of the economy, it is slightly smaller than Conservative Chancellor Norman Lamont’s 1993 Budget.As measured by amount of tax raised relative to the size of the economy, it is slightly smaller than Conservative Chancellor Norman Lamont’s 1993 Budget.
But in a surprise move, Reeves decided not to continue a freeze on income tax thresholds beyond 2028, which would have dragged millions of people into the tax system for the first time or pushed them into paying higher rates. In a surprise move, Reeves decided not to continue a freeze on income tax thresholds beyond 2028, which would have dragged millions of people into the tax system for the first time or pushed them into paying higher rates.
And she announced changes to Labour’s self-imposed borrowing rules to allow the government to pump billions into the UK's infrastructure and fund improvements to crumbling schools and hospitals.And she announced changes to Labour’s self-imposed borrowing rules to allow the government to pump billions into the UK's infrastructure and fund improvements to crumbling schools and hospitals.
Health, education and transport will see spending increases, with the biggest hike in funding for the NHS since 2010 - £22bn extra for the front line and another £3bn for equipment and buildings.
She also froze petrol duty for next year - and retained a 5p cut introduced by the Tories that was due to expire in April.She also froze petrol duty for next year - and retained a 5p cut introduced by the Tories that was due to expire in April.
But she said a £22bn “black hole” inherited from the previous government meant tax rises were needed. Other measures included:
These included:
Capital gains tax paid on profits from selling shares to increase from up to 20% to up to 24%Capital gains tax paid on profits from selling shares to increase from up to 20% to up to 24%
Freeze on inheritance tax thresholds extended beyond 2028 to 2030Freeze on inheritance tax thresholds extended beyond 2028 to 2030
VAT on private school fees from January 2025VAT on private school fees from January 2025
Air Passenger Duty on flights by private jet to go up by 50%Air Passenger Duty on flights by private jet to go up by 50%
New tax of £2.20 per 10ml of vaping liquid introduced from October 2026New tax of £2.20 per 10ml of vaping liquid introduced from October 2026
Tax on tobacco to increase by 2% above inflation, and 10% above inflation for hand-rolling tobaccoTax on tobacco to increase by 2% above inflation, and 10% above inflation for hand-rolling tobacco
Tax on non-draught alcoholic drinks to increase by the higher RPI measure of inflation, but tax on draught drinks cut by 1.7%Tax on non-draught alcoholic drinks to increase by the higher RPI measure of inflation, but tax on draught drinks cut by 1.7%
The stamp duty land tax surcharge for second homes will increase by two percentage points to 5% from ThursdayThe stamp duty land tax surcharge for second homes will increase by two percentage points to 5% from Thursday
In what was the first Budget speech by a female chancellor in the UK's history, Reeves told MPs: "This is a moment of fundamental choice for Britain. In her speech, Reeves told MPs: "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."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."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.""Fixing the foundations of our economy. Investing in our future. Delivering change. Rebuilding Britain."
Reeves says Budget will raise taxes by £40bnReeves says Budget will raise taxes by £40bn
The OBR'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 leading business groups said the Budget was a "tough" one for business, pointing to the National Insurance hike as a blow to the ability of firms to invest.
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%. "At first blush, there is precious little in the government’s first Budget which offers anything other than short-term pain," said Roger Barker, director of policy at the Institute of Directors.
Borrowing is expected to reach £127bn this year.
The Liberal Democrats welcomed the extra money for the NHS "to start repairing all the damage done to local health services by the Conservatives".The Liberal Democrats welcomed the extra money for the NHS "to start repairing all the damage done to local health services by the Conservatives".
But leader Sir Ed Davey said: "Raising employer’s National Insurance is a tax on jobs and high streets, and it will make the health and care crisis worse by hitting thousands of small care providers."But leader Sir Ed Davey said: "Raising employer’s National Insurance is a tax on jobs and high streets, and it will make the health and care crisis worse by hitting thousands of small care providers."
Scotland will receive an additional £3.4bn in Treasury funding as a result of the Budget.Scotland will receive an additional £3.4bn in Treasury funding as a result of the Budget.
First Minister John Swinney has been calling for the UK government to "immediately and significantly" increase funding for Scotland.First Minister John Swinney has been calling for the UK government to "immediately and significantly" increase funding for Scotland.
The SNP government has already cut £500m from its budget this year, with ministers warning that without extra cash they would need to make difficult choices when they set out their tax and spending plans for next year in December.The SNP government has already cut £500m from its budget this year, with ministers warning that without extra cash they would need to make difficult choices when they set out their tax and spending plans for next year in December.
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How does the Budget affect you personally and what would you like us to explain?How does the Budget affect you personally and what would you like us to explain?