Virtually all new Chancellors raise taxes in their first Budget. But few plan to do so by quite as much as Rachel Reeves. The much-vaunted £22 billion fiscal blackhole seems to be growing ever wider, with reports swirling that the Chancellor is seeking to raise up to £40 billion in taxes to balance the books, protect some departments and fund higher public sector pay deals.
This already difficult task has been made harder still by the Government’s self-imposed restrictions. In the lead up to the general election, when Labour was focused on winning at all costs, the party ruled out rises to income tax, VAT and national insurance. That is, the three largest revenue raisers available to the Exchequer.
Such self-denying ordinances have led the Chancellor to some strange places. First, she is stretching the meaning of her promises, refusing to rule out an increase to employer national insurance contributions. Next in the crosshairs is taxes on wealth, ranging from inheritance tax to capital gains and pensions relief.
The political challenge is multifold. First, to sell the Budget on the day itself. That will require convincing the public that these tax rises, as painful as they will be, are a result of the fiscal reckless of her predecessors. That may prove relatively straightforward, with voters having already repudiated the Conservative Government at the ballot box.
But the second may prove far harder. Even with greater borrowing to fund capital projects, and higher taxation to backfill holes in departmental spending, it is not obvious how much better public services will become. Large swathes of the public realm are presently in various levels of disrepair, from the National Health Service, where an estimated 7.64 million treatments were waiting to be carried out at the end of August, to the prisons, where inmates are having to be released early to avoid overcrowding.
The real risk is that even with higher taxes, voters still wonder what they are getting for their money. And that Labour may come to regret ruling out broader based tax rises which have greater potential to plough the kind of sums into the public sector that would lead to genuine improvements, the kind that voters are more likely to reward at the ballot box.
