Budget 2024 latest: Labour grandee warns Reeves over ‘very worrying’ tax raid which would raise billions
Chancellor has reiterated that “tough decisions” have been made ahead of next week
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Rachel Reeves will announce Labour’s first Budget since coming into power on 30 October, leading one of the most anticipated fiscal events in over two decades.
Ahead of her announcement, veteran Labour politician Lord Blunkett has warned the chancellor against “very worrying” proposals to raise national insurance on employers’ pension contributions.
Writing in The Times, the former Labour work and pensions secretary said: “It is one thing to increase the rate of National Insurance, and quite another to levy this on employer pension contributions.
“I sincerely hope the rumours are well wide of the mark.”
Yesterday, the chancellor said “taxes will need to rise” in her starkest warning to the public yet. Writing in the Financial Times, the chancellor added that this will come alongside “tough decisions on spending and welfare.”
Ms Reeves also strongly hints that she will be revising Labour’s fiscal rule around debt, unlocking a potential £57bn for investment, writing that the rule “will make space for increased investment in the fabric of our economy”.
We’ll be bringing you all the latest updates ahead of the big event on 30 October here, on The Independent’s liveblog.
Borrowing figures prove need for “tough decisions” says Treasury official
Treasury Chief Secretary Darren Jones said the state of the public finances meant there would be “difficult decisions” in the October 30 Budget.
He said: “We have inherited a £22 billion black hole in the country’s public finances, including no plan to fund pay deals for millions of public sector workers.
“Strikes cost at least £3 billion last year, so it was the right thing to do to end those damaging disputes.
“Resolving this black hole at the Budget next week will require difficult decisions to fix the foundations of our economy and begin delivering on the promise of change.”
Could the government tax pension savings?
Pension tax relief is a reduction of the amount of tax paid on private pensions. It helps workers save for retirement by boosting their pension pots.
The amount of tax relief a person is granted is based on their income tax. It will effectively cancel out tax on pension contributions up to a maximum of £60,000.
After this, contributions will be taxed at either 20, 40, or 45 per cent, depending on which income tax rate the worker falls into.
However, the chancellor is thought to be considering a flat 30 per cent pension tax relief rate. This would mean that higher earners would effectively pay 10 per cent in tax, while those on the additional rate would pay 15.
The measure would raise around £3 billion a year, with 7 million earners paying more tax. But it would be better news for basic rate earners, who would actually begin to receive a 10 per cent boost to their pension contributions.
Evaluating the idea last year, the IFS said it would “redistribute the burden of taxation from the bottom 80 per cent to the top 20 per cent of earners.”
Calls for budget to fund Iron Dome-style missile defence system in UK
The UK needs its own version of Israel’s Iron Dome missile defence system to protect it from Russian aggression, former ministers have said.
Former defence secretary Penny Mordaunt told The I: “This is a significant UK capability gap we must plug at the earliest opportunity. The forthcoming Budget must enable early work to be done on the alliance’s key needs and let the US and other partners know we mean business.”
Fact check: Would raising employer national insurance be a ‘tax on working people’?
Speculation has mounted in the subsequent months, with an increase in employer NICs now looking likely. The measure has caused strong political debate, focused on whether it would break Labour’s manifesto pledge to not raise taxes on “working people.”
Ministers and Treasury officials have indicated the government’s position is that the measure would not break their manifesto pledge. Labour has not confirmed that an employer NIC hike will be included in the Budget, but has refused to rule the measure out.
Meanwhile, Institute for Fiscal Studies director Paul Johnson has argued it would be a “straightforward breach.”
The tax expert adds that in the extreme case that an increase of one pence per pound in employer NICs was passed on to employees in the form of lower wages, the measure would only net £4.5 billion a year. He adds that the end figure would probably be a little higher than this, but much less than a previous HMRC estimate of £8.5 billion.
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