LONDON (AP) – British Treasury chief Rachel Reeves raised taxes by around 40 billion pounds ($52 billion) on Wednesday. This is to plug a hole in public finances and fund the UK’s cash-starved public services. The move comes in a beefy budget that could set the political tone for years to come.
In the Labour Party’s first budget since regaining power after 14 years in July, Reeves also changed the UK’s debt rules. Opposition figures described this as a ‘fiddling of the books’, but she explained it will allow the government to borrow more to ‘invest, invest, invest’.
On Wednesday, Chancellor of the Exchequer Rachel Reeves announced measures that exceeded Labour’s cautious general election campaign promises. Reeves and Prime Minister Keir Starmer claim they inherited an economy in a far more parlous state than anticipated. They argue that the Conservatives left an economy that was modestly growing and borrowing was under control following the pandemic and the spike in energy costs due to Russia’s invasion of Ukraine. During the election, Labour pledged not to raise taxes on ‘working people,’ a term that has been hotly debated in the media. Although Reeves did not increase income or sales taxes, the Conservatives argue that increasing taxes on employers breaks Labour’s election promise and could lead to lower wages. Former Prime Minister Rishi Sunak, who leads the party until a successor is announced, criticized Labour for going beyond their stated plans. Reeves, Britain’s first female chancellor in 800 years, also announced changes to the government’s debt rules, accounting for assets as well as liabilities. This change will free up billions for investment in health, schools, transport, and infrastructure projects, particularly focusing on the transition to net zero. The budget is arguably the most significant since 2010 following the global financial crisis. Reeves was cautious not to cause concern in financial markets, as seen with the short-lived premiership of Liz Truss. Early signs showed market nervousness, with British government debt interest rates edging higher after Reeves’ statement. The Office for Budget Responsibility forecasts that the economy will receive a boost over the next couple of years but will subsequently grow at a lower rate than previously thought. Thomas Pope, deputy chief economist at the Institute for Government, described the budget as a ‘really big shift,’ particularly on tax. The tax revenue will be spent on public services and investments, with the hope that people will feel better off by the next election.