Rachel Reeves has announced plans to raise taxes and increase borrowing in her commitment to "invest, invest, invest" and rejuvenate Britain's economy.
Set to become the first female Chancellor of the º£½ÇÊÓƵ, she looks to unveil her economic strategy during the Labour party's first budget announcement since Alistair Darling in 2010, promising that she will inject "more pounds in people's pockets".
Despite pledges not to hike income tax or national insurance for workers, businesses may face a higher tax burden as the government seeks to mend public finances and support overextended services.
Reeves is also expected to revise borrowing guidelines, potentially freeing up billions for infrastructure development and enhancements to the ageing systems present in schools, hospitals, and prisons.
According to Reeves: "Politics is about choices. This Labour government chooses investment over decline."
During her Commons address, Reeves will emphasise her staunch belief in the country's potential, stating: "My belief in Britain burns brighter than ever. And the prize on offer to today is immense."
She aims to bolster household incomes, ensure dependable NHS services, and stimulate an economy that generates wealth and opportunities for everyone, stressing that "More pounds in people's pockets. An NHS that is there when you need it. An economy that is growing, creating wealth and opportunity for all."
Reeves firmly believes that enhancing living standards is intrinsically linked with fostering economic prosperity, arguing: "Because that is the only way to improve living standards."
To this end, she contends that persistent investment is the sole path to sustainable growth, adding: "And the only way to drive economic growth is to invest, invest, invest. There are no shortcuts. To deliver that investment we must restore economic stability."
Business leaders, with anxious anticipation, await the Budget's detailed plans, bracing for potential rises in the national minimum wage and employer national insurance contributions, which could further inflate payroll expenses.
The national living wage is set to rise by 6.7%, reaching £12.21 per hour next year.
John Foster, Chief Policy and Campaigns Officer at the Confederation of British Industry (CBI), commented on the wage increase as a "valuable tool" for protecting the incomes of society's poorest. However, he highlighted that in light of stagnant productivity levels, businesses must absorb this wage hike amidst a difficult economic climate and mounting pressures on their bottom lines.
Foster further stated, "That pressure will make it increasingly difficult for firms to find the headroom to invest in the tech and innovation needed to boost productivity and deliver sustainable increases in wages."
The CBI also flagged concerns about the forthcoming rise in employers' national insurance contributing to additional challenges regarding pay, hiring, and investment decisions for businesses.
Moreover, according to the latest Budget report, the armed forces are slated to receive a £3 billion funding increase. This will majorly tackle pay rises while also allocating funds to restock weapons, especially considering the recent depletion of supplies due to aid provided to Ukraine.
Reporting from The Telegraph indicated that the defence spending plans will result in a slight decrease in the proportion of the national wealth allocated to military spending, which remains steady at roughly 2.3% of gross domestic product (GDP). Labour has committed to boosting this figure to 2.5%, although a specific timeline for this increment has not been detailed.
Accompanying its analysis of the Budget, the Office for Budget Responsibility (OBR) is set to present a report highlighting the Tories' legacy and the anticipated £22 billion "black hole" in public finance.
Shadow Chancellor Jeremy Hunt has challenged the OBR's forthcoming report, expressing his concerns in a correspondence with leading civil servant Simon Case, suggesting that the OBR might be "straying into political territory and failing to follow due process".
Key Budget proposals include:
- Enhanced NHS funding, entailing £1.5 billion for new surgical hubs and scanners and £70 million earmarked for radiotherapy equipment.
- A £240 million local services investment to assist jobseekers.
- An increase from the £2 cap to £3 for most bus fares in England.
- Significant educational investments, with £1.4 billion earmarked for school rebuilding, a tripling of funds for free breakfast clubs, an additional £1.8 billion for Government-funded childcare expansion, and £44 million to bolster kinship and foster care support.
The Chancellor has verified impending tax hikes; however, avoiding increases to the benchmark rates of income tax, VAT, and employees' national insurance constrains the options available to Ms Reeves.
She might opt to prolong the existing freeze on personal tax thresholds, which could, by default as salaries grow, subject more people to higher tax rates or migrate them into superior tax brackets a scenario known as "fiscal drag".
The Chancellor seems poised to raise employers' national insurance contributions and may also target capital gains tax paid on the proceeds of selling an asset.
Reports suggest that changes to inheritance tax are also under consideration, which could include extending the number of years someone has to stay alive after passing on gifts to avoid the charge from seven to 10 years.
Furthermore, the Budget could signal the end of the Tories' freeze on fuel duty, which was maintained at the same level between 2010 and 2022, and then reduced by 5p to 52.95p per litre of unleaded, where it currently stands.
