Rachel Reeves will unveil a £35 billion tax bomb today, in what critics dubbed ‘the biggest heist in modern political history.’
In one of the most consequential Budgets for years, the Chancellor will set Britain on a course of high tax, high spending and high borrowing in a gamble designed to kickstart growth.
In remarks released last night, Ms Reeves said: ‘The only way to drive economic growth is to invest, invest, invest.
‘There are no shortcuts. To deliver that investment we must restore economic stability.’
Ms Reeves, who will become the first woman in history to deliver a Budget, will confirm a loosening of the government’s fiscal rules which will enable her to borrow up to £50 billion to spend on infrastructure projects and growth sectors like green energy.
But ministers will be watching nervously for reaction in the City, where the government’s borrowing rate yesterday rose to the highest level since the election, leading to fears of mortgage rate rises.
The Chancellor is also braced for a backlash from business over her decision to focus tax hikes on employers, including a £20 billion hit to National Insurance, which critics have warned will cost jobs and depress wages.
The CBI warned that the tax hike, coupled with a bumper increase in the minimum wage, would ‘make it increasingly difficult for firms to find the headroom to invest in the tech and innovation needed to boost productivity and deliver sustainable increases in wages’.
Investors are also set to be hit by an increase in capital gains tax. And, despite Labour’s pledge to protect ‘working people’, most ordinary workers will also be hit by a decision to extend the six-year freeze in tax thresholds for at least another year.
Tory leadership contender Robert Jenrick said: ‘This Budget completes the biggest heist in modern political history. The Labour Party won power by lying to the British public about their plan to hike taxes.
‘Working people are going to suffer and our economic recovery will take a huge hit. No wonder the public don’t trust politicians.’
Rishi Sunak, who will respond to the Budget on Wednesday in one of his last acts as Tory leader, said the expected rise in NI would be a clear breach of Labour’s manifesto, which pledged not to increase income tax, national Insurance or VAT.
The former PM pointed out that the Chancellor had previously condemned the idea of raising employers’ NI as a ‘jobs tax’.
He said: ‘Rachel Reeves promised that her plans were fully funded, and she promised that she wouldn’t change the debt target because that would be “fiddling the figures”.
‘We already know that those promises are totally worthless because she is going to change her fiscal rules so she can go on a borrowing spree.
‘If she was to compound that by breaking her promise to the British people not to raise taxes on working people by increasing National Insurance, that would be a complete betrayal.’
Yesterday, Ms Reeves appeared to downgrade her election pledge to protect ‘working people’ from higher taxes, saying only that she was ‘committed to ensuring that no working people will see higher taxes in their payslips after the Budget’.
Today she will try to lay the blame for the Budget pain at the Tories’ door.
She will accuse Jeremy Hunt of leaving behind a £22 billion ‘black hole’ in the public finances.
And she will say that spending plans left behind by the last government amounted to a ‘fiscal fiction’ which would have led to a return to austerity.
Instead, she is expected to pour more cash into the NHS and other public services.
Last night she said the Budget could put Britain on the path to the ‘immense’ prize of higher growth and better public services.
She said the measures would ‘turn the page on low growth and will be the start of a new chapter towards making Britain better off. It will mean more pounds in people’s pockets, an NHS that is there when they need it, and businesses creating wealth and opportunity for all’.
But briefing the Cabinet on the outline of her Budget plans yesterday, she acknowledged she had had to make ‘tough choices’ on taxes, spending and welfare.