Rachel Reeves has promised to “grip the cost of living” in the budget as she prepares to scrap the two-child welfare limit and freeze rail fares, while putting forward a multibillion-pound tax-raising package.
The chancellor is preparing to give her second budget on Wednesday after weeks of uncertainty about the scale of the tax rises she will need to impose to plug a financial hole of about £20bn.
Writing in the Mirror and the Sunday Times this weekend, the chancellor acknowledged that high prices “hit ordinary families most” and the economy “feels stuck” for too many.
“That’s why in my budget on Wednesday, I will take action to grip the cost of living,” she said.
She will signal that she wants to help those struggling with the cost of living, while also raising taxes in order to put the public finances on a more sustainable footing.
Some of the tax rises she is likely to opt for include:
Freezing income tax thresholds for an extra two years to 2030, bringing more people into higher tax bands as wages rise.
Making salary sacrifice schemes less generous, including those for pension contributions.
Bringing in higher tax on the most expensive properties, including a surcharge on the highest-value houses.
A pay-per-mile scheme on electric cars to help fill the tax gap from petrol duty as more people opt for green vehicles.
Reeves is coming back with more tax rises despite saying she would not have to again after last year’s increase in employer national insurance contributions. However, she has backed away from the option of raising income tax, which was under consideration for some weeks.
Keir Starmer, who is at the G20 in South Africa, declined to guarantee that future Labour budgets would not contain tax rises. “Obviously, I do want the budget to focus on growth, stability, which [are] the two pillars that are really important,” he said.
Reeves is already coming in for criticism from all sides, with the Green party’s leader, Zack Polanski, and the Unite general secretary, Sharon Graham, pressing her to go further with a more substantial wealth tax.
Polanski told the BBC’s Sunday With Laura Kuenssberg programme: “It’s absolutely outrageous it has taken the Labour government so long to do it, but if they do do it, that’ll be a victory and I’ll celebrate it.
“More widely though, we know that this chancellor will keep talking about tough choices, but they always seem to be tough choices for people out of work or working people who are working really hard while their wages aren’t going up but food prices are going up, for disabled people. When are we going to see tough choices for multimillionaires and billionaires?
Graham urged Reeves to “be Labour” and put in a wealth tax as well as changing fiscal rules so the government can borrow to invest. “They need to do a wealth tax, because everyday people cannot pay any more,” she told the programme.
In contrast, Kemi Badenoch, the Tory leader, accused Reeves of bringing in a stealth tax with plans to freeze income tax thresholds. She said the chancellor should “have the balls” to admit that such a move would breach Labour’s manifesto promise not to raise taxes on working people.
The former Conservative chancellor Jeremy Hunt highlighted that some wealthy people were leaving the country owing to taxation, including the billionaire Lakshmi Mittal, whose decision was reported by the Sunday Times.
Mittal is one of the UK’s richest people and gave about £5m to Labour under Gordon Brown.
