Rachel Reeves has committed not to increase taxes at Labour’s next budget and said the government would need to “live within the means” of her spending plans if public services came under mounting pressure.
After announcing the biggest package of tax rises in three decades in last week’s budget, the chancellor dismissed suggestions that she would need to find additional money by the spring to repair battered public services.
Asked whether more funding would be required for “unprotected” government departments at next spring’s budget and spending review – including for local councils, courts and prisons – she insisted enough was now earmarked for the next five years.
“We’ve now set the envelope for spending for this parliament,” she told MPs on the Commons Treasury select committee.
“We’re not going to be coming back with more tax increases, or indeed more borrowing. We now need to live within the means we’ve set ourselves in the budget and those allocations of spending totals,” she said.
The chancellor admitted over the weekend that she had been wrong to say before the election that no major tax rises would be needed, and promised there was no need to increase taxes further after last week’s budget raised £40bn.
Her response to the committee form her toughest comments yet on Labour’s future plans for the economy, in terms likely to signal that tight budget settlements await certain government departments in the spending review.
The Institute for Fiscal Studies said last week that an extra £9bn in tax increases could be needed to avoid a fresh period of austerity for some Whitehall departments.
Reeves also came under pressure after a rise in government borrowing costs in financial markets, as some City investors reacted to the prospect of higher levels of government debt and fewer Bank of England interest rate cuts.
The chancellor said last week’s budget included plans for day-to-day spending to grow at an average of 2% a year in real terms between 2023-2024 and 2029-2030, which she described as a significant increase.
Defending her plans under questioning from MPs on the committee, Reeves said Labour’s first budget in almost 15 years was a unique moment to “draw a line in the sand” with the previous government and reset the public finances.
“In terms of whether we’ll be doing something similar in the future? No. This was a budget to reset,” she said.
“It means our public finances are now on a firm footing and the trajectory of public spending is much more honest, so we’re never going to need to do a budget like this again.
“This was a once in a parliament reset so that we start on the right foot. And also to give businesses, families and markets confidence that we now do have our public finances on a firm footing.”
