It’s make or break time for the Chancellor on Wednesday.
Chancellor Rachel Reeves has made her choice – and it’s the wrong one (Image: Getty)
One false step and Rachel Reeves is gone. I’ve covered 25 years of Budgets, and I’ve never seen one more perilous than this. It would take a high-wire specialist to pull it off. Instead, Labour has sent in the clowns.
The Treasury and No 10 have a whole team working on this year’s statement, and the only thing they’re going to do is hike our taxes. Increasing taxes by £40billion last year wasn’t enough for Reeves. Now she’s coming back for up to £35billion more.
Reeves seems almost certain to extend the freeze on income tax thresholds for another two years, to 2030. It’s been called the biggest tax rise in history.
That will cost basic-rate taxpayers an extra £405 a year, on top of the small fortune the freeze has already cost them, according to the Institute for Fiscal Studies.
It will push even more people into higher-rate brackets, costing them more than £1,129 each, every year.
Reeves also seems likely to hit savers by cutting the Cash ISA allowance, scale back pension salary sacrifice schemes, target inheritances and slap a new “mansion tax” on higher-value homes. And it still won’t be enough.
She will tax us literally to death then come back for more next year as her tax hikes kill growth.
The Chancellor will spin this as making difficult but necessary decisions. Don’t believe her. There’s one clear route out of this tax disaster, but she refuses to even consider it.
Instead of hiking taxes, she could curb rocketing public spending. But she won’t even try. The entire shortfall will be made up by throwing more levies onto hard-pressed taxpayers, without respite.
When Margaret Thatcher left power, public spending made up 33% of annual UK economic output. Today, it’s 45%. That’s why the finances are in such a mess. Plenty of people are to blame, with former Labour chancellor Gordon Brown first in line. Tory efforts to bring this into balance through austerity didn’t work, but at least they tried.
Outside events such as the financial crisis and pandemic made balancing the books harder, so Reeves inherited a mess.
But she has two options to restore balance and is only taking one. The worst one.
While Labour kills jobs and crushes businesses, public sector payrolls remain unaffected, with inflation-busting pay rises and 60,000 new civil servants appointed under Labour. And then there’s the benefits bill.
When Labour took power 16 months ago, 2.7million people were on long-term sickness benefits. Today, it’s four million.
Every day, around 5,000 more are signed off, and many may never return to work. Why should they? A million Brits can earn more from welfare than working full-time on the National Living Wage. Incredibly, Labour is lining up new rules that will make it even easier to claim.
Reeves will promise to reform benefits on Wednesday, but don’t believe her. She won’t take a single concrete step towards that goal.
She made a half-hearted attempt last year, with plans that would have trimmed just £5billion off a bill heading toward £100billion a year by 2030. Labour backbenchers blocked her.
Former Tory chancellor Jeremy Hunt says returning the working-age welfare bill to pre-pandemic 2019 levels could save £47billion a year without a single tax rise. It’s a potential lifeline for the Treasury.
But Reeves refuses to take it – by choice. Remember that when you work out how much your tax bill will climb after the Budget. This wasn’t inevitable. It’s what the Chancellor deliberately chose to do. And you will pay.
