John Healey has targeted banks and pushed the tax burden to a fresh record high while promising “breathing space” for hard-pressed families in his first Budget.
The Chancellor unveiled a package aimed at the “working people of Britain” as he sought to balance the books against the backdrop of the Middle East crisis and Andy Burnham’s demands for increased spending.
Although the Government highlighted measures to ease the pressure from soaring living costs, the support will be tightly focused. Workers are expected to shoulder much of the tax increase, largely through the continuing “stealth” raid caused by frozen income tax thresholds.
The Treasury’s OBR watchdog now forecasts that income tax and national insurance receipts will be £17.4billion higher each year by 2030-31 than it predicted in March. The increase comes despite expectations that living standards will endure another bleak period of stagnation.
The OBR also warned that welfare spending will continue to rise, with no immediate indication that major reforms are on the way. Kemi Badenoch accused ministers of being “addicted to welfare”.
Homes in council tax bands A-D will receive a £100 payment towards energy bills, Mr Healey announced, in a measure costing £2.6billion.
The removal of VAT from electricity bills will continue until July. However, that support is expected to be wiped out by a projected 27 per cent rise in the energy price cap in the New Year.
Mr Healey also outlined longer-term plans to remove green levies from energy bills and separate the gas and electricity markets.
Consumer champion Martin Lewis was invited to Downing Street as Mr Healey announced plans to abolish standing charges on gas bills. The MoneySavingExpert founder has campaigned for the change for years.
However, the £108-a-year charges will not disappear until at least next year. Larger households could ultimately be worse off because the cost will be transferred to gas unit prices.
A planned fuel duty increase has also been cancelled, with the freeze extended until at least July 2027 to reduce pressure on motorists.
Some of the measures will be financed through a temporary increase in the bank surcharge. The levy, currently set at 3 per cent on top of the 25 per cent corporation tax rate, will rise to 6 per cent for 15 months from January.
Mr Healey has allocated £5.5billion to increase benefits for 10million people by 3.5 per cent, matching the rate of inflation.
He said two long-awaited welfare reviews would report next month, after planned reforms were delayed until later in the Parliament. The benefits bill will be reduced in a “Labour way”, he said, after Mr Burnham rejected what he called “crude cuts”.
Other announcements made today included:
John Healey is delivering his first Budget with a promise of “breathing space” for hard-pressed families, although the main support will be focused on benefits claimants
The Commons chamber was packed for the long-awaited Budget statement today
The tax burden is expected to reach a record high as a result of frozen tax thresholds
Spending on health-related and pensioner benefits is forecast to increase over the coming years
Mr Healey said: ‘Fiscal discipline is my first commitment as Chancellor. More than ever, it underwrites every promise this Government makes to the British people.
‘In the Budget today, I meet the fiscal rules – the stability rule, the day-to-day spending must be covered by tax receipts. And the investment rule, that Government debt, defined as public sector net financial liabilities, must be falling as a percentage of GDP.
‘This year, for the first time, I must meet these rules in the third year of the forecast, and I do.’
The OBR outlook laid out that income tax receipts are due to increase sharply this year.
‘This rise is driven by strong nominal earnings growth combining with frozen tax thresholds,’ it said.
‘Receipts are then forecast to rise to £610 billion (16.5 per cent of GDP) in 2030-31, before remaining broadly flat as a share of GDP in 2031-32 as thresholds return to being uprated by CPI from April 2031.
‘Almost all of this growth comes from higher PAYE income tax because it is a more progressive tax than NICs, and is therefore boosted by the freezes to tax thresholds.’
The OBR also warned that the threshold freeze is ‘likely to have an adverse effect on financial work incentives by increasing the marginal tax rate on each additional hour of work’.
‘Following our standard approach, we have estimated that, taken together, the threshold freezes in income tax and NICs from 2022-23 to 2030-31 could decrease labour supply by 215,000 in average-hours equivalent (AHE) terms by 2030-31.’
Mr Healey laid out the details of the Budget to the Cabinet this morning, before striking the traditional pose with his Red Box and team outside No11.
Ahead of the Commons set-piece, he acknowledged the country was facing a ‘difficult moment’ and promised changes would be made ‘responsibly’ within Labour’s fiscal rules.
He said: ‘Breathing space for today and fresh hope for the future. That’s what today’s Budget will deliver.
‘The world’s a highly uncertain place. Conflicts abroad are pushing up energy prices, and the cost of living here at home is piling pressure on families, on businesses, and on our public finances.
‘But Britain’s economy is showing real signs of resilience: investments up, productivity is growing, and we had the joint fastest growth in the G7 in the first half of this year.’
Britons are facing a grim few years of stagnating real household incomes, according to the OBR
Earnings growth is expected to be slightly faster in cash terms – but households face a darker picture after inflation is taken into account
Mr Healey added: ‘This Budget is designed to give households breathing space from some of the everyday costs, provide targeted support for businesses and self-employed people, and to start the long-term action needed to get energy costs down for good.’
The Chancellor was accused of an ‘insult to families’ yesterday after the Treasury revealed measures will include tariff reductions worth just 40p a week off average grocery bills, including cutting the price of gherkins.
Sources said Mr Healey would not set out welfare reforms, despite official projections suggesting sickness benefits will jump from £83billion last year to £109billion by the end of the decade.
He is expected to outline modest increases in defence spending as well, including filling a £5billion hole in the Defence Investment Plan by cutting Net Zero and road projects.
But he is not expected to commit to raising defence spending to 3 per cent of GDP by 2030, despite resigning as defence secretary over the issue earlier this year.
Government sources said Mr Healey is planning a low-key ‘steady as she goes’ Budget after Ms Reeves imposed record tax hikes in Labour’s first two years.
That left the tax burden heading towards its highest ever proportion of GDP, driven by the long-running freeze on tax thresholds.
John Healey invited consumer champion Martin Lewis into No11 this morning as he announced that standing charges will be scrapped from gas bills
The Institute for Fiscal Studies has suggested the OBR is likely to upgrade earnings forecasts amid higher inflation
John Healey struck the traditional pose with his Red Box and team outside No11, before heading to the Commons to unveil the crucial fiscal package