In what seems to be a Budget that has been pushed to the last possible moment to release, Chancellor of the Exchequer Rachel Reeves is at a crossroads. High inflation and an estimated £30 billion fiscal shortfall is said to be putting immense pressure on Reeves. However, the chancellor is tasked with closing this shortfall, either by increasing taxes or cutting spending to close this gap.
In what seems to be a bit of positive news, inflation has fallen to 3.6% for the first time in seven months. However, the run up to the Budget looks dim, with Reeves calling on everyone to “do our bit for the security of our country”. Economists are adding extra pressure on the chancellor, stating that the UK economy is not growing fast enough (0.3% growth April to June, then back down to 0.1% in September).
This low level of growth and productivity is leaving the chancellor with hard decisions to make. Firstly, she is considering capping pension contributions, limiting how much people can put in their pensions at £2,000 a month, in hopes of keeping this money in the economy. Secondly, proposals to increase landlords’ National Insurance payments (affecting tax bands F, G, and H).
Thirdly, another potential rise could come from the tourism sector, whereby the chancellor could implement a nightly tax on hotel stays. Along with this, a policy backed by former Prime Minister Gordon Brown, the chancellor could implement a gambling tax. Rachel Reeves is under immense pressure by left-wing critics from the Green Party—who are overtaking Labour in various polls—and even critics in her own party who are calling for a wealth tax.
Under this pressure, there are talks of the chancellor implementing a so-called “exit tax” that would impose a 20% levy on unrealised gains from a business asset when a resident leaves the country. An exit tax like this could create £2bn in revenue a year, helping the chancellor to close the £30bn shortfall. With all these rumours about the Budget, what taxes should actually go up?
Left-leaning advocates argue for a wealth tax on unrealised assets, as well as an annual wealth tax, to bring the burden off the workingand lower middle class and close the fiscal gap. They also back an increase in windfall tax on energy companies. This leads on to the problems that left-leaning individuals are having with this current Labour government, whose left-wing rhetoric clashes with their reluctance to implement these policies.
For example, Reeves stated that those with the “broadest shoulders” should pay a “fair share” of tax, yet the Labour government seem reluctant to introduce some form of a wealth tax despite calls from fellow MPs. Right-leaning parties could see “useless” spending cut to try and close this fiscal shortfall. We are seeing a glimpse in how the right wing utilises spending cuts in local county councils, with the Reform-led Lincolnshire County Council warning of spending cuts to save £25 million.
Conservative Party leader Kemi Badenoch stated that they could save £47 billion through welfare reform, cutting oversees aid, and reducing civil service size. She has also proposed abolishing stamp duty, exemplifying the traditional Conservative standpoint of reducing taxes. However, Kemi Badenoch’s policy would depend heavily on finding very large spending cuts, and could encounter the very problem Reeves is experiencing with cutting spending, as, politically, it is very contentious point, especially amongst the One Nation Conservative wing.
Furthermore, austerity rhetoric is extremely unpopular, and is one of the main things Labour utilised against the Conservatives in the 2024 general election. However, since then, Labour have dropped significantly in the polls. This Budget is, therefore, extremely important; not only for the country, but for Reeves herself, with the prime minister’s position being questioned.
Just last week, Number 10 issued a statement warning potential challengers like Wes Streeting that the PM would fight for his position. MP Clive Lewis stated he would be willing to give his seat up to allow Manchester Mayor Andy Burnham to challenge Keir Starmer, showing how divided the party really is. The chancellor’s Budget not only leaves the party’s future uncertain, but also the country’s.