The United Kingdom is raising taxes by an eye-watering £40 billion ($52 billion), as the government seeks to plug a hole in its finances by targeting higher earners, wealthy foreigners and businesses.
UK finance minister Rachel Reeves, the first woman to ever hold the position, unveiled the measures Wednesday in the ruling Labour Party’s first budget since it won a landslide victory in a general election in July.
“Today, I am restoring stability to our public finances and rebuilding our public services,” Reeves said, arguing that the now-opposition Conservative Party had “failed” Britain, including by inadequately budgeting for required government spending.
“The British people have inherited their failure. A black hole in the public finances. Public services on their knees. A decade of low (economic) growth. And the worst parliament for living standards in modern history,” she added.
Reeves called her predecessor Jeremy Hunt’s £10 billion ($13 billion) cut to payroll taxes, which he unveiled in March months ahead of the election, “the height of economic irresponsibility,” contrasting her own budget as charting a “responsible” course while making tough but necessary trade-offs.
Reeves had few easy options. Britain has suffered years of lackluster economic growth, low levels of business investment and only tepid improvements in living standards.
A mounting public debt burden — virtually the same size as the economy — means that ever more of the government’s budget is hoovered up by borrowing costs, leaving less for crumbling public services, including the stricken National Health Service.
Before its election victory, Reeves’ Labour Party had pledged to keep taxes on working people “as low as possible,” promising to not raise income tax, sales taxes or payroll taxes.
On Wednesday, the government targeted higher earners instead, announcing plans to tax inherited pensions and unveiling increases to capital gains tax, which is paid on the profits made when selling investment properties and financial assets such as shares.
Reeves also said the government would move ahead with plans, first announced by Hunt, to abolish the non-domiciled tax regime that applies to people who live in the UK without paying tax in the country because they claim to have permanent residence abroad. The government will instead introduce a new tax system for such individuals, raising £12.7 billion ($16.5 billion) over the next five years.
Reeves also confirmed plans to scrap a 20% tax break on private school fees and remove the relief that private schools currently enjoy on taxes on commercial properties known as business rates.
The biggest revenue-raiser will be an increase to employers’ National Insurance contributions, which companies pay for each salaried worker they employ. The tax hike will eventually raise £25 billion ($33 billion) per year. The government has also reduced the threshold at which that levy is paid, although small businesses will be exempt from the changes.
