The Budget: What do we know so far?
The PA news agency looks at what we might be able to expect from Labour’s first Budget.
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Your support makes all the difference.Rachel Reeves will present her first Budget as Chancellor to the House of Commons on October 30, but the fiscal event is already raising eyebrows amid reports about the tax rises and spending cuts it could contain.
Here, the PA news agency looks at what we might be able to expect from the Budget, based on reporting ahead of its airing in the Commons.
– What are the problems Labour faces as it sets out its spending plans?
Public services including the NHS and local councils are struggling across the UK, as they grapple with an ageing population, backlogs caused by the pandemic, and the aftermath of the coalition-era austerity programme.
Labour has brokered a pay deal for a swathe of public servants after several years of industrial action, a spending commitment worth £9 billion by some estimates.
Ms Reeves has also claimed the previous Conservative government did not account for the costs of some of its promises, which now need to be met or scaled back.
These commitments, alongside keeping the Government’s ongoing costs “standing still”, made up the so-called £22 billion “black hole” in the public finances which Labour said it needs to fill.
However, Ms Reeves is said to have since identified a far larger £40 billion funding gap which she will seek to plug to protect key departments from real-terms cuts and put the economy on a firmer footing.
Sir Keir Starmer has placed economic growth at the heart of its “mission-led” approach to Government, so his ministers are also keen to avoid steps which may upset companies from across the globe looking to invest in the UK.
– What has the Government already said about how it plans to manage the public finances?
Despite these challenges, Labour has vowed there will be no return to austerity while it is in government.
The party also made a manifesto promise not to raise the major taxes on “working people”: national insurance, income tax and VAT.
Instead, it has committed to specific tax rises, such as the decision to start charging VAT on private schools, in order to fund their agenda.
However, there are hints further tax rises could come, and also that the Chancellor may make changes to the way the Government calculates its debt reduction targets.
– What taxes might be raised in the Budget?
The Chancellor could raise taxes which do not directly effect working people.
Two levies which she may have set her eyes on raising are capital gains tax (CGT), and national insurance contributions made by employers.
Newspaper reports in recent days have suggested that CGT could be hiked by a few percentage points, raising revenue in the “low billions” for the Exchequer.
There are also rumours that employers could be asked to pay a larger amount in national insurance contributions.
The news broke amid the international investment summit hosted by the Prime Minister, with some claiming the extra tax on companies may drive away the type of investors Sir Keir was hoping to woo.
Fuel duty, a tax which is included in the price motorists pay for petrol at the pump, could also be raised for the first time for more than a decade.
The tax on motor fuels was frozen by the Tories between 2010 and 2022, and was then cut by 5p to 52.95p per litre, where it currently remains.
The levy is a major source of revenue for the Government, and raising it could be an easy way to help meet Ms Reeves’ £40 billion target.
– What other steps could be taken to tackle the UK’s economic challenges?
There have also been rumours Labour could tweak the fiscal rules the Government uses to constrain its own spending and tax decisions.
Chief among those under consideration for change is the period over which the Government aims to see national debt falling as a percentage of the UK’s overall economic output.
Relaxing this rule to a longer period than the current five-year target, or removing spending by certain public organisations from the total, could allow the Chancellor to borrow more cash to invest in major infrastructure projects such as railways, roads, hospitals and new prisons.