Latest news with #publicSpending
Telegraph
21 hours ago
- Business
- Telegraph
Reeves expected to extend stealth raid on income tax
Rachel Reeves is expected to freeze income tax thresholds in her autumn Budget to fill a £40 billion black hole. The Chancellor has been put under pressure by three policy U-turns by Sir Keir Starmer, which are set to increase public spending by about £4 billion later in the year. Some within the Labour Party believe she may not survive the year if she is forced to raise taxes and impose further cuts at the same time. The latest policy reversal, on benefit cuts, will mean the Government will save just half of the £5 billion it hoped to recoup from sickness and disability payments. But Ms Reeves has left herself with few options to raise funds. As well as committing not to increase the rates of income tax, National Insurance or VAT, nor to raise corporation tax, she has insisted she will not break Labour's fiscal rules. Freezing the threshold for the additional rate of income tax was one of the suggestions in a memo from Angela Rayner, the Deputy Prime Minister, to Ms Reeves which was leaked to The Telegraph last month. The current freeze, which was due to be lifted in 2028, dragged seven million people into higher tax brackets last year, raising around £15 billion. Paul Johnson, the director of the Institute for Fiscal Studies, an independent think tank, said a further freeze in thresholds would be 'pretty high up the attractiveness scale' in this year's Budget. 'I think it's fairly likely, as a politically easy way to raise something of the order of £10 billion in additional revenue by the end of the Parliament,' he told The Telegraph. One Labour MP said the Chancellor was now 'in deep trouble' because she has already ruled out several of the easiest ways to raise revenue. 'It's hard to forgive her for where we are now. She locked herself in, foolishly, to a set of commitments that have become unsustainable,' the MP said. The Treasury was already facing a black hole of between £20 billion and £30 billion because of lower-than-expected growth forecasts, partly driven by Donald Trump's imposition of tariffs. The £4 billion cost of Sir Keir's U-turns is expected to be compounded by a revision to the Office for Budget Responsibility's (OBR) medium-term productivity forecast this summer and growth forecast this autumn, which could have an impact on revenues of between £7 billion and £8 billion. This week's decision to maintain benefit payments for existing claimants has cost the Treasury £2.5 billion, while the U-turn on winter fuel payments for pensioners cost a further £1.25 billion. Ms Reeves is facing backlash from Labour MPs over her proposal to cut benefits, which was designed to bring down the cost of welfare at the expense of thousands of claimants. Sir Keir, who watered down the measures to avoid the biggest rebellion of his career, insisted that his 'common sense' welfare reforms now strike 'the right balance'. But the situation leaves the Chancellor with little choice but to freeze income tax thresholds, which were due to rise in line with inflation from 2028. The policy would likely raise around £8 billion a year in tax receipts, but would cost a worker earning on an average salary thousands more in income tax by the end of the decade. Independent economists say a further freeze in the autumn is now all but certain, and that further increases on smaller taxes or a new raid on pensions could be required to make up the shortfall. Downing Street refused to rule out further tax rises on Friday, with a spokesman saying: 'As ever, as is a long-standing principle, tax decisions are set out at fiscal events.' However, Ms Reeves's team remains optimistic that good economic performance between now and the Budget will reduce the £105 billion cost of servicing government debt, which currently accounts for 8.2 per cent of public expenditure. The Bank of England is widely expected to cut interest rates at its next meeting on Aug 7, although gilt yields are not directly determined by the base rate. Treasury officials also hope that the cost of energy will continue to fall, although it is acknowledged that instability in the Middle East could drive up the price of crude oil once again. Ms Reeves is adamant that she will not break her fiscal rules – to increase public sector borrowing as a percentage of GDP or raise money on the markets to fund day-to-day spending – and believes that maintaining market stability should be the Government's primary goal. Balancing the books with a stealth tax on income has been a favoured policy lever of successive chancellors. The current freeze to 2028 was introduced by Sir Jeremy Hunt in his 2022 Budget. But the policy results in more people paying higher rates of income tax as their wages increase – an economic phenomenon known as fiscal drag. OBR figures show that in 2024-25, some £15.3 billion extra was due to be raised thanks to the frozen thresholds. In the same year, the OBR predicted that the total welfare bill was set to shoot up by £16.6 billion. Figures released on Thursday show that seven million people have been dragged into paying higher rates of income tax as a result of the stealth raid on wages. Frozen thresholds forced an extra 520,000 taxpayers into the 40p bracket in the last year, according to estimates by HMRC. It brings the total to just over seven million in 2025-26, a 60 per cent rise from the 4.4 million in 2021-22 when income tax thresholds were first frozen under the Tories. The number of 45p additional-rate taxpayers has more than doubled from 520,000 to 1.2 million over the same period. Last November, Ms Reeves told MPs she would not raise taxes again or increase borrowing and that the Government would need to 'live within the means we've set ourselves' for the remainder of the Parliament. 'We're not going to be coming back with more tax increases, or indeed more borrowing,' she told the Treasury select committee.
Times
3 days ago
- Business
- Times
The government must push through its welfare bill at all costs
Few matters are so important that a government should risk its future to get its way. The bill to reform the welfare system is one such. Rebel Labour MPs are threatening to kill the bill in a vote next week. The government should do its utmost to stop that happening, even if it means turning the issue into a vote of confidence. Britain's economic future depends on welfare reform. Government debt is the size of the entire economy. With growth stagnant and the war in Ukraine forcing unexpected increases in the defence budget, getting a grip on public spending is essential. The most obvious candidate for cuts is welfare expenditure. Spending on sickness benefits has grown from less than £50 billion a year before the pandemic to £80 billion now. The government's bill would make it harder to access personal independence payments and would reduce the higher level of incapacity benefit. Even after those changes, the cost of sickness benefits is expected to reach £98 billion by 2030. Reasonable people might therefore conclude that the main problem with the government's plan is that it does not go far enough. However, 108 Labour MPs, including 10 select committee chairs, regard these modest economies as excessive. They have signed an amendment which would, in effect, sabotage the bill. Privately, a dozen members of the government have threatened to resign over the proposed cuts. Despite the government's large parliamentary majority, the revolt is big enough to defeat the proposed legislation. Rebels have been emboldened by the U-turn which the government performed earlier this month when it rowed back on an intended cut to pensioners' winter fuel payments. If the government caved on that, surely they can persuade it to back down on this? • Looming welfare rebellion is a battle Starmer can't afford to lose But the benefits bill is far more important than winter fuel, and not just in monetary terms. It represents the most serious attempt yet by ministers to rein in spending. If a bill as modest as this cannot get through parliament, there is no hope of getting the public finances under control. The bond market will be watching the bill's progress closely. Britain's reputation for financial management is already poor enough that the government pays 4.5 per cent on its debt, compared with Germany's 2.5 per cent and France's 3.3 per cent. Further evidence of fiscal irresponsibility could trigger another rise, which would push up interest costs further still. At £108 billion per year, the government already spends about twice as much on debt interest as it does on defence. Neither the government nor the country can afford to see the welfare reform bill fall. If Sir Keir Starmer performs another U-turn or loses the vote, his credibility, already weakened, will be destroyed. If borrowing rates rise further, Britain's finances will be further destabilised. • Welfare U-turns may jeopardise Rachel Reeves's fiscal rules An opposition that placed the country above political advantage would vote for the planned cuts. Kemi Badenoch, the Conservative leader, has promised to back the bill, but only if the prime minister promises in the Commons to levy no new taxes in the autumn, and to cut the welfare budget rather than merely restrict its growth. Given this heavily-qualified offer, Sir Keir must use this week to bring his rebels to heel. To do so, he must rediscover the ruthlessness he demonstrated before the election when he purged Labour's candidates list of left-wingers, and when he suspended seven MPs for opposing his plan to keep the two-child benefit cap. He should make it clear that he is prepared to turn the vote on the benefits bill into one of confidence in his government. That is the nuclear option: if he lost, an election would be called. This bill is not just a tweak to the welfare system. The country's future is at stake. Sir Keir must make it clear to the rebels that for Labour, and for Britain, this is make or break.
ABC News
20-06-2025
- Business
- ABC News
Tasmania's election campaign should be fought on the budget, business leader and economist say
When Labor declared it had tabled a motion of no-confidence in Premier Jeremy Rockliff, it listed three main reasons. They were the potential privatisation of public assets, the failure to deliver the new Spirit of Tasmania ferries on time, and the state of the Liberal government's budget. On that budget, here are a few quick figures: Now, with Tasmania in an election campaign, business leaders and economists are hoping to hear the major parties' plans for repairing the balance sheet. The Tasmanian Chamber of Commerce and Industry's Michael Bailey says as the election is largely about the budget, the campaign should be fought on it. "Tasmania has a spending problem at the moment. "We need to make sure that we can get our spending back under control." That partially refers to the fact the state has a history of spending more than it budgets for, particularly in health. Here's how the Liberals and Labor have been treating the issue of spending and budget repair: Elections are often a big-spending affair. The Liberals have previously been accused of pork barrelling (slang for bribing the electorate for their votes), but they say they are simply listening to community concerns. Labor also promised a whole heap of community grants last election. The main difference is the relevant department would eventually assess them to decide if they were worthy of spending money on. There are also a whole heap of other policies, such as the stamp duty exemption for first home buyers, that will cost taxpayers money. And those spending promises really add up. Economist Saul Eslake says Treasury data shows the 2018 and 2021 elections each added $1.4 billion of spending to the budget without any mention of how to pay for the promises. Last year's was even more expensive. "[The levy is] about the only election commitment that hasn't been met since the election. "Labor would've spent an additional $2 billion over five years if they had won. "So, to hope that that wouldn't be repeated in the election campaign would be a bit like Samuel Johnson's definition of second marriage — a triumph of hope over experience." At the moment, 40 per cent of Tasmania's money comes from the carve up of GST. Around a third is own-source revenue. Mr Eslake has put forward several options to raise more money, including collecting more payroll tax from businesses, raising car registration fees, adding a duty on the purchase of expensive new motor vehicles — "with appropriate concessions for pensioners and other low-income earners". He also suggested switching stamp duty to a land tax and increasing mining royalties. He says Tasmania collects about $40-50 million a year less than it would if its scheme was equivalent to those of other states. Money could also be found by asking the salmon industry to pay royalties for the use of Tasmanian waters. "That wouldn't solve Tasmania's problems, of course, but it would make a useful contribution to reducing the deficit over time." All of these ideas have been rejected by the major parties. Mr Rockliff also pointed out that legislative changes in 2023 meant the salmon industry now pays for its own regulation. "The salmon companies cost government. They return that to government, so it's cost neutral and that's been a significant reform under our government," he said. Another way to raise revenue, selling off state-owned companies and government business enterprises has been ruled out by both major parties already. As have any new taxes. Growing the economy is also a big part of how both major parties plan to get the state out of debt. As part of that, the Liberals have been waging a war on red tape, and if some of Labor's new policies are anything to go by, they're planning to do the same. When asked about increasing revenue, Labor leader Dean Winter talked about growing the economy by unlocking $25 billion in renewable energy developments. Premier Jeremy Rockliff on the other hand said investments in key services such as health, education and community safety would help increase revenue. The TCCI's Michael Bailey is less worried about the revenue side of things. "You don't give someone with a spending problem more money," he says. Mr Bailey wants the parties to find efficiencies in the public service, arguing that it's grown by 30 per cent since the COVID pandemic. "We know that we're borrowing to pay for those wages," he said. "They do wonderful work, but it's simply too big for what Tasmania can afford right now, so we would argue that that's the first thing that should be looked at." Both major parties have revealed their plans to find some savings, and they include the creation of new units. The Liberals' plan, which was announced in March, is called the Efficiency and Productivity Unit (EPU); Labor has the Review and Evaluation Unit (REU). Two names and slightly different descriptions for two things that will do very similar things — examine the effectiveness and value for money of government programs to try and identify savings. The Liberals are assuming they will be able to cut spending to the point where in three years' time overall government expenses will be less than they are this year. They hope to find savings through: Labor's plans to "save the budget more than half a billion dollars", while not outlined in an alternative budget, were part of leader Dean Winter's budget reply speech. They hope to do this by: This list is far from extensive, however, none of the policies have been costed by treasury. If the party that wins government does not right the ship, Mr Eslake estimates Tasmania is heading to a debt of $16 billion by 2035 with repayments to hit $750 million a year. "We've gone from in the middle of the past decade, being a net creditor, that is having more money in the bank than the government owes by way of debt, to now having debt and other liabilities," Mr Eslake said.
Daily Mail
19-06-2025
- Business
- Daily Mail
Back to school...now MSPs to be taught 'fiscal literacy' in bid to improve decisions
For those getting into politics, one would think it a basic requirement. But calls have been made to teach new MSPs about 'fiscal literacy' in a bid to improve decisions around tax and public spending. The Scottish Parliament's finance committee has released a new report which demands greater transparency from SNP ministers about budgets. It also calls for action to improve the ability of MSPs to make decisions and scrutinise them. It comes amid concerns about the damaging impact of the SNP's tax policies on the economy. The report, published today (FRI), highlighted that some witnesses told the committee that 'fiscal literacy' should be encouraged amongst all MSPs so that there can be a more 'mature' approach. It said: 'The committee agrees with witnesses that enhancing the fiscal literacy of all MSPs would help to support more effective scrutiny of budgetary matters and potentially encourage a more mature wider debate around the spending and tax decisions taken by Government. 'We therefore intend to write to the Scottish Parliamentary Corporate Body to ask that a comprehensive fiscal literacy training programme be put in place through the induction of new MSPs elected at the 2026 Scottish Parliament elections, and through continuous development for all members throughout the five-year cycle.' The committee also concluded that improvements are required in the strategic financial planning by the Scottish Government, and that significant, long-term fiscal pressures in Scotland can no longer be avoided. Finance committee convenor Kenneth Gibson said: 'We believe the Scottish budget process, and its building blocks, remain fit-for-purpose. However, the way in which it has operated in practice this session has been far from ideal, and improvements are now needed. 'Our recommendations in this report are therefore intended to ensure that the objectives of the budget process - including improved transparency and awareness, responsiveness to emerging fiscal and policy challenges, greater influence and better outcomes - can now be fully met. 'Our view remains that improvements are also required in the Scottish Government's strategic, financial planning. This should be supported by an improved quality of data and key documentation published by the government, within the timescales expected by Parliament.' Scottish Conservative finance spokesman Craig Hoy said: 'This damning report from the committee needs to be an urgent wake-up call for SNP ministers.'
The Independent
30-05-2025
- Business
- The Independent
Can Reeves calm Labour's troubled waters with her spending review?
The term 'fiscal event' hardly does justice to the significance of the government's comprehensive spending review, due to be published on Wednesday 11 June by the chancellor, Rachel Reeves. It's been in preparation more or less since Labour took office last July. It matters at least as much as any Budget because it sets out broad public spending plans for each area of government. These cover planned investment and current spending in areas such as wages, but exclude cyclical items such as unemployment benefits. So they are a strong statement of the Labour government's priorities. All the signs are that it's been a difficult process, and the leaks and the spinning have already begun. What's the trouble? Trying to balance the books (in reality borrowing huge but manageable sums) is the answer to that. In an environment of great global uncertainty, alongside sluggish UK growth thanks to Brexit, and in a country with an ageing population, Reeves's task is an unenviable one. In addition, she will have to balance the pressing political demands of colleagues with her determination to stick to her 'fiscal rules'. Specifically? At the moment, backbenchers in the red wall seats in the North and the Midlands that Labour regained from the Tories at the general election are pressuring the Treasury to pour billions into much-needed investment in infrastructure, to make the most of the industrial potential of these neglected areas. This would also, of course, have a helpful electoral benefit for those MPs who are facing a challenge from Reform UK. Reeves has hinted that she could adjust her rules on investment spending to facilitate tens of billions to be devoted to levelling up the regions. Sounds familiar? Yes, indeed. Although Labour chooses not to use the loaded slogan 'levelling up' about 'left behind' communities, it is very much what Boris Johnson promised in 2019 and, for good and bad reasons, wasn't delivered as expected in the last parliament. Before that, George Osborne, Tory chancellor from 2010 to 2016, talked ambitiously about devolution, the ' Northern Powerhouse ', and the 'Midlands Engine'. There was even a red wall caucus of Tory MPs, named the Northern Research Group (NRG), who lobbied hard for successive Tory administrations to live up to their promises (most of the NRG members have since lost their seats). The ultimate symbol of Tory failure was the cancellation of the HS2 rail project, launched with so much hope by David Cameron but miserably dismembered by Rishi Sunak at the 2023 Conservative Party conference. In Manchester. In a former railway station. Now, exactly the same dynamic is operating within the Starmer administration. There are some big personalities involved? Yes: Angela Rayner, deputy leader and deputy prime minister, for one. Powerful as her office makes her, she also has an excellent case for expanding the 'affordable homes fund', because of the importance Labour placed on the housing crisis and its target of 1.5 million new homes to be built during its first parliament. This was always a tough one – so much so that it's been reported that Rayner threatened to quit in exasperation and Tony Blair had to persuade her out of it (a story she denies). She is also surely right to get some adequate funding into local authorities before many more fall into chaotic bankruptcy, which would look like carelessness if not incompetence on the part of Rayner. Other ministers putting up a fight are Yvette Cooper at the Home Office, Ed Miliband (Energy), and Steve Reed (Environment). Liz Kendall (Work and Pensions) and Reeves will also need to persuade their backbench colleagues to back whatever welfare reforms they eventually settle on – ideally, restoring the pensioners' winter fuel payment, lifting the two-child cap on child benefit, and ameliorating planned cuts to disability benefits. Defence and Health are the only areas likely to escape demands for 'efficiency savings'. What can Labour backbenchers do? The spending review is an odd beast, because unlike, say, a finance bill, it's not legislation and doesn't necessarily have to be voted on; and for that matter, a government doesn't have to stick to it (even if it wants to). It's just a 'plan', a statement of intent, and a series of signals about priorities. But some sort of backbench rebellion seems inevitable, even among the usually loyal 2024 intake, even if only by proxy. At a minimum, they will certainly expect some signs of the imminent restoration of the pensioners' winter fuel payment – the cutting of which was hated by the voters and would have saved little money – and on progress to end child poverty. Will there be resignations? There's talk of Rayner being pushed to the limits of her patience, again, and her resignation would be cataclysmic. However, in most cases of a politician wrestling with their conscience, their conscience usually loses. Rayner would not be thanked for abandoning the administration less than a year into its life. Even worse, as the party is already suffering in the polls, she would thereby be hastening the onset of the ultimate catastrophe – a Farage-led government. She would attract at least as much scorn and blame for that as she would gain respect for standing up for working people, or whatever. She might, as others have in the past, improve her chances of winning the leadership in due course by making a tactical move to the back benches now, but she's said she's not interested in the top job, and her treachery would probably cost her dear in any case. Having come this far, she'll most likely stick with it. Others, maybe some more junior ministers with an eye on the long game, might decide to leave office 'on principle'. But this would not affect the outcome of the spending review, which is ultimately going to be more cuts.
