Rachel Reeves has said those with the “broadest shoulders” should pay their “fair share,” of taxes and promised new measures to tackle inflation, as she draws up next month’s crunch budget.
Speaking in Washington DC, where she was attending the annual meetings of the International Monetary Fund (IMF), Reeves confirmed she was looking at wealthy taxpayers as she draws up her budget plans.
She also promised a new package of anti-inflation measures, after the IMF’s warning that UK consumers are expected to suffer the highest price rises in the G7 this year and next.
“Inflation is still too high,” she said. “We do want to bear down on some of the costs that people face.” She added she would deliver “a range of policies to do that” in the budget.
The Bank of England has repeatedly pointed to “administered prices” – those set by regulators or government – as a key cause of above-target inflation. In the Bank’s August monetary policy report, it cited changes in sewerage charges, bus fares, vehicle excise duty and VAT on private school fees as “administered prices” contributing to inflation.
Reeves pointed to the recent competition review of vets practices, and the government’s decision to freeze prescription prices, as examples of what can be done.
The chancellor is expected to deliver a package of tax increases and spending cuts on 26 November to meet her fiscal rules in the face of deteriorating forecasts from the independent Office for Budget Responsibility (OBR).
She acknowledged that wealthy taxpayers could expect to pay more – but stressed that she was determined not to deter this group from staying in the UK.
“I want Britain to be a great place for talent, for entrepreneurs, for successful individuals to come, and that requires getting the balance right,” Reeves said. “But I do think those with the broadest shoulders should pay their fair share of tax and I think you can see that from my actions last year at the budget.”
She added: “I want the UK to remain an attractive place, but we’ve got to get the balance right and I do think that if Britain is your home you should pay your taxes here.”
Reeves also said she hoped to secure promises of more investment in the UK from major pharmaceutical companies, in exchange for a more favourable deal on drug prices.
“We do need to make sure that we are an attractive place for pharmaceuticals, and that includes on pricing, but in return for that, we want to see more investment flow to Britain,” she said.
The government is in talks with pharmaceuticals firms, which are demanding more generous treatment by the NHS, under pressure from Donald Trump to lower prices in the US. At the same time, ministers are pressing the US not to impose tariffs on drug imports.
“We’ve been very successful with the US in terms of negotiating lower tariffs ... and of course, we want that to be the case with pharmaceuticals as well. But we are in the middle of those negotiations at the moment,” the chancellor said.
Pressed for details about how she could raise additional revenue from richer taxpayers, the chancellor said: “We’re not going to be introducing a wealth tax. We already have a number of taxes in the UK that do tax wealth and do tax wealthy people, and some of those we increased in the budget last year.”
She highlighted changes at last year’s budget, including the crackdown on non-doms, VAT on private school fees and higher taxes on private jets.
Asked to clarify who may be affected, Reeves added: “Wealth’s not about your annual salary.”
The chancellor confirmed reports that she would like to use the budget to build up more headroom against her fiscal rules – but stressed that this would be difficult, because it required higher taxes or deeper spending cuts.
“If you’re asking me would I like more headroom, of course I would, but that comes with tradeoffs.” Pointing to jittery bond markets, she said: “A greater buffer against that volatility would be helpful.”
Changes to the OBR’s productivity forecasts, together with the costs of U-turns on the winter fuel allowance and welfare cuts, are expected to leave the public finances £20bn to £30bn adrift of the situation in the March spring statement.
Amid frenzied speculation about how she will raise the necessary revenue to close the gap, she appeared to play down the likelihood of taxing banks more heavily in the budget.
Asked about the issue, she said: “We want to make sure that Britain is a great place to do business and to bring in business. Just in the last week or two, JP Morgan have made a £300m investment in Bournemouth for example.
“Financial services is one of our big success stories in the UK and we want to make sure that we have a competitive environment. But also we want to make sure that everyone pays their fair share of taxes. We’ve got to get the balance right there.”
Reeves also confirmed that she was considering downgrading the status of the OBR’s spring forecast, so that she would only be measured against her fiscal rules once a year, in the autumn budget.
She said she would be discussing this issue with the IMF managing director, Kristalina Georgieva, at a meeting later on Thursday – the IMF has called for the UK to change its approach.
