Rachel Reeves yesterday put Britain on red alert for tax rises amid mounting speculation she is plotting a VAT raid on the middle classes.
In an extraordinary U-turn, the Chancellor ditched her pledge not to raise taxes again, saying ‘the world has changed’.
The Prime Minister’s Chief Secretary Darren Jones refused to rule out increasing VAT in the Budget, despite a manifesto commitment to keep it at the same level.
And Whitehall sources told the Daily Mail that the Treasury was examining options for adding VAT to services that are currently exempt – with private healthcare and financial services said to be in the firing line.
Putting VAT on private healthcare could raise £2billion for the Treasury, but would hit up to eight million middle-class families.
The Treasury is also looking at options to cut the threshold at which small businesses have to register for VAT, despite pressure from the sector to raise the limit to boost growth.
One source said: ‘Raising the headline VAT rate is going to be very difficult after all the promises that have been made. But there are ways of broadening the VAT base that could raise significant sums. We have already seen that with VAT on private school fees – you could now see it with private medical insurance and some of the other items that are exempt.’
It came as:
- Keir Starmer prepared to issue another tax warning today, when he will use his keynote party conference speech to say that rebuilding Britain ‘requires decisions that are not cost-free or easy’;
- Ms Reeves signalled a hike in betting taxes to fund the lifting of the two-child benefit cap, saying there was ‘a case for gambling firms to pay more’;
- Labour divisions opened up over the Prime Minister’s controversial decision to attack Nigel Farage’s immigration policies as ‘racist’;
- Andy Burnham flip-flopped over whether he wants to lead Labour after Ms Reeves savaged his ‘dangerously wrong’ plans for more spending and borrowing;
- Labour activists defied Sir Keir to pass a motion condemning Israel’s actions in Gaza as ‘genocide’;
- Ms Reeves called for a new ‘youth mobility’ deal with Brussels to be ‘maximised’, as Mr Burnham suggested Britain would rejoin the EU in his lifetime;
- The Treasury said a new back-to-work scheme for unemployed youngsters would not apply to tens of thousands who complain of anxiety and other mild mental health conditions;
- Home Secretary Shabana Mahmood branded the Unite the Kingdom marchers as the ‘heirs to skinheads’.
Rachel Reeves, pictured with Sir Keir Starmer, yesterday put Britain on red alert for tax rises amid mounting speculation she is plotting a VAT raid on the middle classes
In November last year, Ms Reeves tried to calm business anger over her £40billion Budget ‘tax bomb’ by telling the Confederation of British Industry that it was a one-off and she would not be ‘not coming back with more borrowing or more taxes’.
But asked to repeat the pledge yesterday, she told the BBC: ‘I think everyone can see the world has changed in the last year and we are not immune to that.’
And in her conference speech in Liverpool, Ms Reeves dropped further heavy hints that she is planning further tax rises this autumn, before urging Britons to ‘have faith’ that she would be able to turn the economy round.
Ms Reeves said: ‘In the months ahead we will face further tests, with the choices to come made all the harder by harsh global headwinds and the long-term damage done to our economy, which is becoming ever clearer.’
The comments will fuel fears that the Chancellor is preparing for another round of massive tax hikes to fill an estimated £30 billion black hole in the public finances.
Shadow Chancellor Sir Mel Stride said: ‘Under Labour, nothing is safe – not your job, savings, or pension. Rachel Reeves says she won’t risk the public finances, but she’s already doing that – with more borrowing, higher spending, and more taxes.
‘Labour has raised taxes by £40 billion per year, including a £25 billion tax on jobs, and now won’t rule out coming back for more.’
In last year’s manifesto, Labour pledged not to raise VAT, income tax or National Insurance as part of a ‘tax lock’ pledge designed to protect ‘working people‘.
But in recent days both the PM and Chancellor have refused to rule out increasing VAT, saying only that Labour ‘stands by’ the manifesto.
Mr Jones suggested the ‘tax lock’ commitments may not survive the Budget, adding: ‘The Budget is not until November 26, so we’re not going to say at party conference today what the Budget is. We’ll tell the country that in Parliament in the normal way.
‘The manifesto stands today because decisions haven’t been taken yet.’
Former Labour leader Neil Kinnock has called for VAT to be levied on private medical insurance for the first time, saying it could provide ‘vital funding’ for public services.
But the move would hit millions of people who have taken out private medical insurance because of concerns about the state of the NHS.
The Treasury declined to comment.
