Reeves to sting voters with ‘dirty dozen’ tax rises in Budget

Middle-class families face a “dirty dozen” tax rises in the Budget as Rachel Reeves expands the welfare state.

After abandoning plans for the first increase in income tax rates since 1975, the Chancellor will instead impose a string of other tax rises that will mostly be borne by middle England.

Freezing income tax thresholds for two more years will cover much of the revenue-raising as she seeks to plug a £30bn gap in the public finances and raise her buffer to balance the books.

Higher taxes on properties worth £2m and above, a new pay-per-mile scheme for electric vehicles, an increased rate of dividend tax, raised gambling duties and a raid on pension contributions are also among measures expected to be unveiled.

The combined impact of freezing income tax thresholds and raiding pension contributions would cost a typical middle-class family nearly £1,600 a year, according to calculations by the wealth manager Quilter.

The money raised by Ms Reeves will be used to fund higher benefits for families with more than two children as well as increases in welfare payments that are likely to outstrip private sector wages next year.

A package designed to bring down energy bills will also be announced amid speculation the Chancellor will freeze fuel duty in an effort to limit increases in the cost of living. However, this support will not include an end to VAT on household energy after initial plans were abandoned.

Ms Reeves will use her Budget speech to argue that tax rises are essential if the NHS and other vital public services are to be protected.

She will say: “Today I will take the fair and necessary choices to deliver on our promise of change.

“I will not return Britain back to austerity, nor will I lose control of public spending with reckless borrowing. I will take action to help families with the cost of living ... cut hospital waiting lists ... cut the national debt.”

However, Mel Stride, the shadow chancellor, branded the package of 12 or more tax rises a “dirty dozen”.

He said: “Rachel Reeves is dressing up a dirty dozen tax hikes as fair and compassionate – but working people can see the truth. It looks as though this Budget will dodge all the tough choices, punish those who play by the rules, and proves Labour still can’t be trusted with the nation’s finances.”

The Chancellor’s reference to avoiding “reckless borrowing” is a warning shot to her Left-wing colleagues who argue ditching her fiscal rules and taking on more debt is a wiser course of action.

The narrative will be challenged by the Conservatives who argue that Ms Reeves’s tax rises are partly funding an expected £15bn increase welfare spending.

The extension of a stealth raid on wages will itself prompt a debate about whether it breaches Labour’s manifesto pledge not to increase tax on “working people”.

Last night the Chancellor also confirmed inflation-busting increases in the minimum wage, prompting an attack from employers and even a Labour-linked think tank that it risked driving up youth worklessness.

Ms Reeves was accused of “crippling” the jobs market after she announced businesses will be forced to pay teenagers more than £10 an hour for the first time.

The Resolution Foundation think tank, which has close links to Downing Street, warned that the 8.5pc increase for 18 to 20-year-olds would make it harder for young people to find work.

Nye Cominetti, at the Resolution Foundation, said the measures risked pushing the number of young people not learning or earning closer to a million. “These steep increases risk causing more harm than good if they put firms off hiring,” he said.

Ms Reeves is expected to preside over the biggest cumulative tax raid since the fallout from Black Wednesday amid the growing backlash from the Left against measures in her second Budget.

The Chancellor announced £40bn of tax rises in her first Budget last October.

While Wednesday’s Budget will not surpass this, the combined tax raid will be the biggest at the first two budgets in a parliament since Tory chancellors Norman Lamont and Kenneth Clarke imposed back-to-back tax raids in 1993 after the pound was forced out of the Exchange Rate Mechanism in September 1992.

The independent Office for Budget Responsibility (OBR) is also expected to downgrade its growth forecasts against an increasingly gloomy economic backdrop.

‘PTSD’ from last Budget

Business leaders warned they were still suffering “PTSD” from last year’s tax raid as a survey laid bare the state of paralysis across corporate Britain.

A closely-watched survey showed confidence among retailers sank at the steepest pace since the global financial crisis in anticipation of another Budget tax raid.

Sentiment on the high street dropped at the sharpest rate in 17 years this month in the run-up to Ms Reeves’s speech, according to the Confederation of British Industry (CBI).

Sales are plunging in a worrying sign for retailers who typically rely heavily on profits made in the run up to Christmas.

Ministers on Monday also announced a “milkshake tax”, with milk-based drinks now hit by the sugar levy, and a “tourist tax”, giving mayors the power to levy a charge on overnight stays, a move welcomed by Sir Sadiq Khan, the Mayor of London.

The so-called “smorgasbord” approach carries political risk for the Government, given raising money from numerous areas rather than a single tax change has a higher potential for overlooked impacts arising and dominating headlines.

The Chancellor will also confirm on Wednesday that working-age benefits – including Universal Credit, disability and child benefit – will be uprated in line with inflation.

The 3.8pc rise, which kicks in from April, will cost an estimated £6bn and will form part of a £15bn increase in welfare, including the abolition of the two-child cap on benefits funded by a tax raid on the middle classes.

Wes Streeting, the Health Secretary, hit back at suggestions that welfare recipients were “feckless, irresponsible and on the take”.

However, Labour MPs accused Ms Reeves of betraying voters with the plans. A veteran backbencher branded the Budget “for the Labour Party and not the country”, which would do nothing to reduce the welfare bill.

Graham Stringer said Ms Reeves’s decision to scrap the two-child benefit cap – a move supported by Labour voters – showed that she has capitulated to party members.

Mr Stringer said Ms Reeves had failed to “grasp the nettle” on welfare savings, in particular “fraud and the fiddling” of the system.

Pre-Budget ‘pep talk’

Last night Morgan McSweeney, Sir Keir Starmer’s chief of staff, summoned Labour advisers from across government for a pre-Budget “pep talk” in Downing Street.

Amy Richards and Matt Pound, the political directors of No 10 and the Treasury, attempted to keep spirits high after a difficult few weeks of news about Ms Reeves’s statement, according to those at the meeting.

Mr Streeting also defended the Government’s decision to hit milkshakes and lattes with a sugar tax for the first time. He said that “nanny state” interventions were needed to prevent further tax rises.

Mr Stringer, the Labour MP for Blackley and Middleton South, described the run-up to the Budget as “chaotic”.

He added: “It’s the worst preparation for a Budget I have ever seen. I don’t think it will be a Budget for growth, which is what the country needs.

A second Labour MP said: “This Budget seems make-or-break for Reeves and probably for Starmer as well. She is in trouble anyway, as the OBR has downgraded growth for the future.”

[Source: Daily Telegraph]