Budget 2024: Reeves reveals £40bn in tax rises as she promises to rebuild public services

Rachel Reeves has revealed plans for £40 billion in tax increases aimed at corporations and the wealthy. This marks Labour's first budget in 15 years, aiming to address over ten years of decline in the UK's public services.

Following months of speculation following the party's decisive win in the general election, the chancellor unveiled an extensive set of tax hikes that she claimed were essential for restoring fiscal balance and moving away from austerity measures.

“Reeves stated that the sole path to enhancing living conditions and boosting economic progress is through continuous investment. He emphasized that there are no quick fixes and that to achieve this investment, we need to establish economic stability and move past the challenges of the past 15 years.”

At its core, the plan involved raising national insurance contributions (NICs) that employers would need to pay, which is expected to generate £25 billion by the end of this parliamentary term. Additionally, there will be significant revenue boosts from adjustments to capital gains tax, inheritance tax, VAT on private education, and changes to the non-domicile tax rules.

The chancellor stated that the budget honored a commitment to protect working individuals from tax increases, emphasizing that they wouldn't notice higher taxes in their paychecks due to the decisions he is making now. Reeves mentioned that she had received numerous requests to undo the final reduction the Conservatives implemented on National Insurance contributions for employees, but she refused to do so, declaring, "That is a promise made and a promise kept."

This meant there would be no increases in income tax, national insurance, or VAT. She also decided against a 7p-per-litre hike in fuel duty and opted to maintain the multi-billion-pound freeze on personal tax thresholds. "This government consistently prioritizes the protection of working individuals," Reeves stated.

The NHS came out as the big winner. Reeves revealed an additional £22.6 billion for its operational expenses and a £3.1 billion boost to the capital budget for both this year and the next.

Reeves assured that there would be "no return to austerity" and pledged increased funding for schools and education. This plan involves additional investments in breakfast clubs and a £6.7 billion capital investment for the upcoming year, which marks a 19% increase. A significant portion of this funding will be directed towards renovating schools that contain hazardous aerated concrete.

However, the growth in departmental budgets will be limited to 1.5%, which is less than the anticipated 2%. As a result, some ministries without special funding, such as the Home Office and the Department for Transport, will see their budgets reduced.

In its assessment, the Office for Budget Responsibility noted that Reeves's decisions would result in an annual spending increase of £70 billion, while taxes as a proportion of gross domestic product would hit an all-time high.

In a setback for Reeves and Keir Starmer, the Office for Budget Responsibility (OBR) has lowered its growth forecasts, projecting only a 1.6% annual increase by 2029, which is significantly below Labour's goals. The Chancellor attributed this decline to the “black hole” in public finances she inherited and noted that the initial projections were made using incomplete data from the previous government.

In a groundbreaking budget, marking the first led by a female chancellor, Reeves explained that the challenging decision to increase taxes was necessary to restore stability to the public finances after inheriting a challenging economic situation from the Conservative Party.

“We are starting a new era of national rejuvenation. Our goal is to strengthen our core values and bring about change through accountable leadership that prioritizes the country's best interests. This is our mission, and I am confident that we can make it happen,” she stated.

The major changes are likely to provoke fresh criticism, especially after Labour promised during the election campaign that only slight increases in taxes were necessary to fund their spending proposals.

Companies will begin contributing to National Insurance contributions (Nics) once an employee’s earnings reach £5,000, down from the previous threshold of £9,100. Additionally, the employer's contribution rate will rise by 1.2 percentage points, bringing it to 15%.

Opposition MPs and business leaders have criticized the government for being inconsistent in its interpretation of what it means to "protect working people." They argue that imposing hefty tax increases on employers could lead to negative consequences for employees, including job cuts and reduced wages.

This week, Starmer commented that the government should face the tough realities of the financial situation, placing the blame on the Conservatives for the poor condition of Britain, which he attributes to years of poor economic management.

Reeves stated that the budget needed tax hikes after discovering a £22 billion deficit in public finances, which she argued had been hidden by the Conservative Party. She warned that this issue would have continued for the next five years if immediate steps had not been taken.

The chancellor also announced that she would ease the Treasury's own financial guidelines to permit extra borrowing for infrastructure investments, which she emphasized would be crucial for revitalizing the UK economy.

“According to Reeves, these financial guidelines will help secure our public finances while allowing us to wisely invest in partnership with businesses.”

Reeves unveiled several important initiatives, including funding aimed at compensating victims of two significant scandals for the first time. Specifically, £11.8 billion has been allocated for those affected by the contaminated blood scandal, while £1.8 billion is set aside for victims of the Post Office Horizon scandal.

The chancellor announced plans to continue tightening the work capability assessment, which is expected to impact tens of thousands of individuals receiving disability benefits. This move aims to generate approximately £1.3 billion.

Taxes on tobacco and alcohol will increase, except for draft beer, which will see a price drop of one penny per pint to support pubs. Additionally, the sugar tax on soft drinks will be raised, and a new tax on vapes is set to start in October 2026.

At the beginning of her speech, Reeves dedicated a considerable amount of time to presenting her criticisms of the Conservative government's policies. She pledged to go through her economic legacy in detail, addressing each point. She attributed the negative effects on the nation's finances and public services primarily to Conservative austerity measures, the controversial “mini-budget” introduced by Liz Truss, and particularly to the Brexit agreement.

She stated that the Office for Budget Responsibility (OBR) realized it didn’t have all the necessary information when it created its spring forecast during the time of the previous chancellor, Jeremy Hunt, which he has strongly contested. “We will never let a government recklessly handle our public finances again,” she declared. “We will never permit a government to conceal the real condition of our public finances.”