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Rachel Reeves was adamant: “I don’t have plans to be a big tax-raising chancellor,” she told the FT on a visit to Washington in May last year.
Yet on Wednesday, the chancellor presented a Budget that will raise taxes by £40bn, the biggest single increase in a generation.
She claims that Labour discovered a “black hole” in the public finances after entering government, giving her greater freedom to go beyond manifesto promises of a smattering of small, niche tax rises on the oil and gas industry, private equity, independent schools and non-doms.
In multiple areas, from national insurance to inheritance tax, the Budget broke with previous promises or assurances.
Fiscal rules
In November 2023, Reeves told Bloomberg that she had no intention of changing the fiscal rules governing the Treasury. Asked if she could consider using a less challenging debt target — allowing her to borrow more — she replied that she was “not going to fiddle the figures or make something to get different results”. She added: “We will use the same models the government uses.”
She was still saying the same thing weeks before the election, telling the FT in June that she would adopt the same definition of the national debt as the previous government.
Yet on Wednesday the chancellor confirmed a move to target public sector net financial liabilities — or PSNFL — as a measure of the country’s debt in a move designed to free up billions of pounds for long-term investments.
National insurance
The Labour manifesto stated very clearly that the party “will not increase National Insurance”.
In May, Reeves insisted: “We certainly won’t be increasing income tax or national insurance if we win the election.”
It was only in August, after the general election, that chief secretary to the Treasury Darren Jones subtly began to change the language of that pledge.
“We will have to consider some tax measures at the Budget on October 30 whilst honouring that promise to the public not to increase income tax, employee National Insurance or VAT,” Jones said, adding an “employees” caveat that was not in the manifesto.
On Wednesday, Reeves introduced a 1.2 percentage point increase to employers’ NICs to 15 per cent and cut the threshold at which employers start paying the tax from £9,100 to £5,000 from April next year. The measures will raise £25bn a year by the end of the OBR’s forecast period.
Capital gains tax
Early last year Reeves signalled that a Labour government would not tamper with capital gains tax.
Asked on BBC Radio 4’s Today programme in March 2023 if Labour would put up CGT, she said: “I don’t have any plans to increase capital gains tax.”
“There are people who have built up their own businesses who maybe at retirement want to sell that business,” she said. “We want Britain to be the best place to start and grow a business.”
Reeves announced on Wednesday that CGT for most assets — such as share sales — would rise for lower-rate taxpayers from 10 per cent to 18 per cent.
CGT will increase from 20 per cent to 24 per cent for higher earners. There were some carve-outs, with the rate paid on second homes to remain at its existing levels of 18 and 24 per cent.
Business asset disposal relief
In September 2023 the Times reported that Labour was drawing up plans to scrap or reduce business asset disposal relief, which allows people who own more than 5 per cent of a company to sell their stake at a rate of just 10 per cent instead of the usual 20 per cent CGT.
Reeves’ aides told the FT Labour had no such plans.
Yet on Wednesday the chancellor announced that the rate of CGT for entrepreneurs selling their stakes in companies would rise to 14 per cent in April 2025, and then to 18 per cent a year later.
Inheritance tax loopholes on shares and businesses
In 2023 it was reported that Labour was considering ending business relief for inheritance tax, which exempts shares in an unlisted company or a significant interest in a business from the duty.
At the time, Labour denied having any such plans.
Reeves announced on Wednesday that business IHT relief on Aim-listed shares would be cut and sellers would have to pay 20 per cent tax. She said that heirs of businesses would pay 20 per cent IHT above an initial threshold of £1mn.
Inheritance tax agricultural land loophole
In 2023 Labour denied rumours that it would close an inheritance tax exemption on investment in farmland, used regularly by the super-wealthy.
Steve Reed, shadow environment secretary at the time, told a conference of the Country Land and Business Association that Labour had ruled out scrapping the relief for farmers.
Reed, asked whether Labour intended to get rid of the tax break, replied, “we don’t”, adding, “we have no intention of changing APR”.
On Wednesday Reeves announced that passing on agricultural land — above an initial £1mn threshold — would be hit with 20 per cent inheritance tax.
The Treasury said on Wednesday night: “The Budget delivers on the manifesto pledge not to raise taxes on working people, as well as the commitment to introduce robust fiscal rules and invest to grow the economy.
“Meanwhile, difficult decisions have also been taken to repair the £22bn black hole inherited by this government, and as the chancellor has said, this has involved decisions she had not expected or wanted to make.”