Labour's first Budget goes big on tax

After months of anxious speculation and a Labour Party Conference that was defined by what the Prime Minister and Chancellor didn’t say about their tax and spending agenda, we finally know what the new government’s first Budget looks like.

Rachel Reeves took a moment to mark the significance of the first Budget delivered by a female Chancellor of the Exchequer - and it is indeed a significant Budget. The Chancellor unveiled a substantial number of tax increases totalling £40 billion, including an increase in employer National Insurance (NI) contributions that will raise £25 billion by the end of this Parliament. This came alongside increases to Capital Gains Tax and pre-announced changes such as reforms to the non-dom tax regime and the removal of private schools’ VAT exemption.

Reeves placed the blame for the tax hikes squarely at the door of the Conservatives, repeating the now well-rehearsed claim of a £22 billion hole left in the public finances by her predecessor.

Nevertheless, the move to raise employer NI contributions has been met with criticism, with some arguing that this represents a betrayal of Labour’s promise not to raise taxes on working people.

The government’s line here, as delivered by Chief Secretary to the Treasury Darren Jones in his post-Budget media round, is that workers will see no changes to the taxes on their payslips as a result of this Budget. The Institute for Fiscal Studies, however, said that despite this the cost of the NI increase will fall largely on working people, citing analysis from the independent Office for Budget Responsibility.

Some of the concessions Reeves made reflect Labour’s new electoral coalition; despite expectations, she committed to maintaining the fuel duty freeze for another year. Given that the government’s landslide majority includes more rural seats than Labour has held in the party’s history, it is perhaps unsurprising that the Chancellor felt the need to placate motorists.

Some of the more challenging policies announced today include new restrictions to Business Property Relief and Agricultural Property Relief. Under the government’s new plans, if a business or agricultural asset is valued at more than £1 million, inheritance tax will be charged at 20%, slashing the previous exemption. Family-run businesses and farmers have reacted strongly to the news, and this is likely to be an area where the government will face concerted campaigns to persuade them to row back on the changes.

The other story of the Budget is investment. The Chancellor announced a new £22.6 billion pot for day-to-day healthcare spending and over £3 billion in capital spending to invest in upgraded hospital sites and the NHS’s beleaguered IT systems. £6.7 billion has been allocated for investment in the school system, while the government has committed to funding the HS2 tunnels from Old Oak Common to London Euston.

The Prime Minister may famously have said “things will get worse before they get better”, shortly after entering office, but the message of today's Budget is that the government is determined to deliver improvements to public services that the electorate will be able to feel, and is hoping they will accept the taxes rises the Chancellor has brought in to pay for them.