Will Reeves raise taxes in the Budget?

In the run-up to a Budget, we’re used to hearing ministers bat away questions by saying we’ll have to wait for the announcement.

So it was unusual to see chancellor Rachel Reeves delivering a pre-Budget speech this morning (4 November) - effectively setting the scene for what’s to come on 26 November.

In the speech, Reeves acknowledged there is “a lot of speculation” about the choices she has to make.

And much of this has focused on if taxes will go up or not.

So what’s going on - and what did we actually learn this morning?

Reeves doesn’t rule out tax rises

Labour had pledged not to hike income tax, VAT or National Insurance in its general election manifesto last year.

But she pointedly said today’s speech was about “setting the context for Budget”.

In other words, she’s not ruling out putting up taxes.

Why might taxes go up?

In her speech, the chancellor said: “I have to face the world as it is, not the world as I want it to be. 

“And when challenges come our way, the only question is how to respond to them, not whether to respond or not.” 

So what challenges does she face?

National debt

Reeves pointed out that £1 in every £10 of taxpayers’ money is currently spent on debt interest - and that the UK’s national debt now stands at £2.6tn.

But she stressed there are limits to how much the government can borrow - which means it might have to look elsewhere to raise money.

A tough inheritance

The chancellor also said criticised the legacy of the previous Conservative government, in particular “the long-term impact of Tory austerity” and “their botched Brexit deal”.

“All this meant that when the pandemic arrived our country was under-prepared, our public services weakened and our economy fragile,” she stated.

“And we finished the pandemic with higher death rates and higher debt than our peers.” 

Low productivity

The chancellor warned that productivity performance is weaker than previously thought.
 
This, she said, has “consequences for working people, for their jobs and for their wages, and for the public finances too, in lower tax receipts”.  

New global challenges

Reeves also said that the world has “thrown more challenges our way” since the last Budget.

For instance, inflation has been “slow to come down”, while the “continual threat of tariffs” has “dragged on global confidence - deterring business investment and dampening growth”. 

The chancellor also stated that “an uncertain world” means the government faces pressure to increase defence spending.

What about benefits?

Reeves said the welfare state is also putting pressure on the public finances and confirmed that the government wants to reform the system.

That’s significant because it’s already tried to do this once, partly by restricting access to personal independence payment (PIP).

But it was forced to backtrack after strong opposition from Labour MPs.

Nevertheless, it seems the government is still determined to make changes and bring the welfare bill down.

Ms Reeves said she wants to make sure that welfare “is not a system that counts the cost of failure, but one that invests in success and protects those who need it most”.
 
But she said there is “nothing progressive about refusing to reform a system that is leaving one in eight young people out of education or employment”.

“So we have begun the job of creating a system that protects people who cannot work and empowers those who can,” Reeves commented.

Reeves promises action on cost of living

The chancellor acknowledged that food and energy prices are still weighing heavily on people.

But she suggested that steps will be taken in the Budget to ease the pressure on hard-pressed households.

The government is reportedly thinking of cutting the 5% VAT charge on electricity bills, which could make a big difference to people struggling with the cost of gas and electricity right now.

But this is just a rumour at the moment.

“The choices I make in the Budget this month will be focused on getting inflation falling, creating the conditions for interest rate cuts to support economic growth and [improving] the cost of living,” Reeves said.

Watch this space

The chancellor delivering a speech like this just weeks before the Budget is very unusual.

But we shouldn’t be surprised at the lack of any clear policy announcements.

Instead, this was an exercise in expectation management - and possibly softening up a restless electorate for what might be a tough Budget.

Rest assured that we’ll be keeping a close eye on what’s announced on 26 November and here to let you know what it will mean for you and your money.