Voters were last night braced for swingeing tax rises, after Rachel Reeves embarked on an unprecedented spending spree.
In a return to Labour’s tax-and-spend approach, the Chancellor set out plans to ‘invest’ a staggering £4 trillion to fund ‘the renewal of Britain’.
She mentioned that the proposals, which involve allocating more funds to the NHS, aim to put an end to the ‘harmful’ austerity from the previous administration and enhance economic development.
Labour planners are optimistic that this substantial investment will yield positive results by reducing hospital waiting times, enhancing the aging infrastructure, and kickstarting economic progress.
Nevertheless, analysts have cautioned that the magnitude of the expenditure, along with the worsening state of public finances, could lead to another series of detrimental tax hikes later this year. The Conservatives have criticized Ms. Reeves for embracing a risky ‘spend now, tax later’ strategy.
The Chancellor insisted her plans could be funded by the eye-watering tax rises she imposed last year. She refused to rule out tax rises this autumn, saying only that taxes ‘won’t have to go up to pay for what’s in this Spending Review’.
But the small print of yesterday’s Treasury document already includes one significant new tax hike, with the Chancellor pencilling in council tax hikes that will add more than £350 to an average Band D bill by 2029 to help fund local services and the police.
Asked to rule out further tax rises, Treasury minister Emma Reynolds said: ‘I’m not ruling it in, I’m not ruling it out.’
In a return to Labour’s tax-and-spend approach, the Chancellor set out plans to ‘invest’ a staggering £4 trillion to fund ‘the renewal of Britain’
Labour Party Leader Keir Starmer (L) and Shadow Chancellor Rachel Reeves (R) prepare for the Tory Spring Budget in Parliament on March 5, 2024 in London
Shadow Chancellor Mel Stride said Ms Reeves had ‘completely lost control’ of the public finances and the Spending Review was ‘not worth the paper it is written on’. He predicted that a ‘Corbynist catalogue’ of tax rises would follow this autumn.
Mr Stride told MPs: ‘This is the spend now, tax later review, because the Chancellor knows that she will need to come back here in the autumn with yet more taxes, and a cruel summer of speculation awaits.’
Paul Johnson, director of the Institute for Fiscal Studies, said the public finances were so tight that the Chancellor would need further tax rises if ‘anything at all goes wrong with the current economic forecasts’.
Tom Clougherty, of the Institute of Economic Affairs, said Ms Reeves had failed to address the crisis in the public finances, adding: ‘We should brace ourselves for tax increases in the autumn, and a summer of speculation over exactly where they will fall.’
On a day that will frame the political debate for the next election:
- Police chiefs warned of cuts to the front line, after Yvette Cooper emerged as one of the few losers from the spending bonanza;
- Ms Reeves piled further pressure on the Home Secretary by announcing a target to empty Britain’s asylum hotels by the next election;
- The Chancellor said new funding for the health service would deliver an extra four million tests and procedures by the end of the decade;
- NHS chiefs said much of the extra cash would go to fund above-inflation pay rises for doctors and nurses;
- Ms Reeves suggested defence spending will be frozen at 2.6 per cent of GDP in the latter years of this parliament, despite Nato pressure to double it to 5 per cent;
- Deputy Prime Minister Angela Rayner secured a £39 billion boost for social housing after weeks of bruising battles with the Treasury;
- Ms Reeves ripped up the Treasury’s value-for-money rules in order to pour cash into Red Wall seats where Labour is being challenged by Reform;
- She announced £15 billion for transport projects including a revamped ‘Northern Powerhouse’ rail project.
Yesterday’s Spending Review covers government plans for the next three years. Treasury sources said it totalled £4 trillion.
Day-to-day spending is £190 billion higher than planned by the last Conservative government, while spending on capital projects is £113 billion higher.
But the figures do not include the soaring welfare bill, or the cost of servicing the UK’s debt mountain, which totals more than £100 billion a year. The review also relies on implausible plans to achieve efficiency savings of £12 billion a year.
Day-to-day spending is £190 billion higher than planned by the last Conservative government, while spending on capital projects is £113 billion higher
Any of these factors could tip Ms Reeves into breaking her fiscal rules later this year.
She has yet to set out how she will pay for a U-turn on winter fuel payments, which is forecast to cost £1.25 billion. And she is under pressure from Labour MPs to end the two-child benefit cap at a cost of £3.5 billion and to scrap planned cuts to disability benefits totalling £5 billion.
Labour’s former shadow chancellor John McDonnell welcomed the spending on long-term capital investment but said Labour had to ‘learn the lessons’ of the winter fuel debacle and loosen the purse strings on welfare.
He told Sky News: ‘We cannot be seen as the austerity party by imposing cuts on the poorest in society… There will have to be tax increases – we need redistribution.’
The spending package follows months of bitter Cabinet infighting over how to allocate government spending for the coming years.
The Chancellor yesterday said her choices would deliver on the public’s priorities.
She said her ‘driving purpose’ was ‘to make working people, in all parts of our country, better off’.
But she acknowledged that many voters had yet to feel any difference from Labour’s first year in office.
