Reeves drops tax bomb

Chancellor warns that UK to expect tax rises in her autumn Budget, as a row erupted over how much she knew about the £22bn fiscal hole…reports Asian Lite News

Chancellor Rachel Reeves has warned the UK to expect tax rises in her autumn Budget, as a row erupted over how much she knew about the £22bn fiscal hole she claims she inherited from the last Conservative government.

“I think that we will have to increase taxes in the Budget,” Reeves told the News Agents podcast on Tuesday. She declined to detail which taxes would increase, but again ruled out rises to value added tax, national insurance or income tax.

Reeves has accused former Tory chancellor Jeremy Hunt of lying about the state of the public finances and said that she had been unaware of the extent of the pressures on government spending before taking office.

One issue she highlighted on Monday was the former Tory government’s “failed” immigration policies, including housing asylum seekers in hotels and a scheme to send them to Rwanda, which had “placed huge pressure on the Home Office budget”.

However, Labour publicly warned before the election that the Conservatives had spent billions of pounds more than planned on the asylum system. Critics said Reeves had been well aware of the problem before entering government.

Reeves on Tuesday doubled down on her attacks on Hunt. “He lied and they lied during the election campaign about the state of the public finances,” she told Sky News. 

Hunt said the attack was “desperate” and that Reeves’s claims of a fiscal cover-up were “unravelling” as it emerged that Labour had previously highlighted exploding Home Office spending.

The £6.4bn of overspend on the asylum system in 2024-25 was on Monday cited by Cabinet Office minister Pat McFadden as a particularly egregious example of things the new government had “found” that were “tougher than was revealed before the election”.

McFadden spoke of “overspends on the asylum and immigration budget, which were being funded by the [Treasury] reserve”.

However in February this year, Labour compiled a dossier of its own “shocking” figures showing there had been an “eye-watering overspend on asylum support”, taking the Home Office overspend for 2023-24 to nearly £5.5bn.

Labour officials at the time pointed out that £4.3bn of the overspend that year had been covered by Treasury reserves.

Yvette Cooper, then shadow home secretary and now leading the Home Office, said at the time that the figures laid “bare the complete chaos the Tories have created in the asylum system”. 

“Now the home secretary has been forced to go to the chancellor with a begging bowl because he’s bust his budget by over £5bn,” she said in February.

Former Tory home secretary James Cleverly said: “No one could be surprised that asylum has been funded through reserves. It’s a multiyear pattern of funding. 

“To turn around and say you’re shocked the government was planning to do what it’s done for the last three years is nonsensical.”

A parliamentary briefing report in March spelt out how the Home Office has for several years relied on Treasury reserves to plug a gap in funding allocated in the 2021 spending review.

James Smith, research director at the Resolution Foundation think-tank, noted that a huge spike in small boat crossings after the 2021 spending review had precipitated a multiyear shortfall.

He said that Labour “knew there was overspend in the Home Office budget” and “it was obvious this was going to be a problem”.

Smith added however that Reeves’s team were handed some “genuinely new information” about the extent of asylum and immigration costs this year.

The £6.4bn asylum overspend was the second biggest item in Reeves’s list of unfunded commitments, behind the £9.4bn the chancellor incurred by honouring in full public sector pay awards of between 5 and 6 per cent proposed by independent review bodies.

She announced a series of measures to partly close the funding gap — including axing winter fuel payments for 10mn pensioners, scrapping road and rail schemes and reviewing a hospital building programme. She also warned of more cuts and tax rises to come.

Her announcement caused concern among some left-wing Labour MPs. Diane Abbott said on X: “Departmental cuts, spending cuts, welfare cuts, cuts to investment. And more to come. This is renewed austerity.”

Reeves rejected the claim of renewed austerity, noting the pay increase for public sector workers. A spokesperson for Cooper said the £5bn Home Office shortfall was for last year and was therefore a “completely different figure” to the one unearthed this year.

“We were literally staggered by the figure for this year and the forecast for further years,” they said. The Treasury said “there will be further difficult decisions on tax and spending at the Budget on October 30”.

“The chancellor has not committed to any tax rises not already in the manifesto and has committed to not increasing national insurance, VAT or income tax,” it added.

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