Keir Starmer’s government budget, unveiled on October 30, is historic in more ways than one. It is the first to be championed by a woman, Rachel Reeves, 45, the Chancellor of the Exchequer. This key position in the British parliamentary monarchy – which has existed since medieval times – has, until now, always been held by a man. This is also the first budget by a Labour cabinet after 14 years of Conservative domination, which the British left ended by winning the general election in July.
Finally, this budget, which Starmer announced as “painful” as early as last summer, includes unprecedented tax hikes of £40 billion a year (€48 billion), but also a huge £100 billion investment package over five years, in order to “rebuild” the UK and its public services, which are “on their knees” after being neglected by the Conservatives, according to Reeves.
This former Bank of England economist said the reason the Chancellor was imposing such tax hikes was because “the Conservatives have left the worst economic inheritance since the Second World War” – and in particular, an over £20 billion “black hole” in the public finances in 2024 (the difference between committed expenditure and expected revenue to the Treasury), which had been “hidden” by Conservative Rishi Sunak’s cabinet. To keep Labour’s campaign promise not to raise taxes on “working people,” however, Reeves announced that the bulk of tax increases would be imposed on businesses or come from capital gains.
No ‘return to austerity’
The employer’s contribution to National Insurance (used to fund certain social benefits) will increase by 1.2%, while tax on capital profits will rise from 10% to 18%, remaining one of the lowest in the G7 countries. The Chancellor also announced an increase in taxes on inheritance and private jet tickets, a 20% VAT on private school tuition fees, and the end of the advantageous “non-dom” status, which allowed residents not to be taxed in the UK by claiming permanent residence elsewhere. Finally, Reeves promised that there would be no “return to austerity,” but departments already in difficulty (such as transport, and especially justice) will have to tighten their belts once again.
Beyond the bad news, the Chancellor’s main aim was to emphasize the “restorative” function of her budget, with a major novelty: this former chess champion confirmed that she had adopted a new tax rule (already widely in force elsewhere in Europe), removing loans used for capital investment from the calculation of public debt. In this way, she is keeping to her commitment to reduce public debt as a proportion of GDP by the end of the legislature, while freeing up tens of billions of pounds for public services and infrastructure.
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