LONDON – British Finance Minister Rachel Reeves has announced a significant tax increase of £40 billion annually in her first budget, aiming to address a public service crisis she claims was left by the Conservative Party after 14 years in power. Reeves attributed a £22 billion shortfall in public finances to unmet compensation payments, such as those owed to infected blood scandal victims, and underfunding across essential services.
“Any Chancellor standing here today would face this reality,” said Reeves in her budget address. “Today, I am restoring stability to our public finances and rebuilding our public services.”
Reeves’ planned tax hikes—equivalent to 1.25% of economic output—would be one of the largest since 1993, according to the Institute for Fiscal Studies. Though higher spending on health, housing, and education is anticipated, Labour’s new government intends to fund this by raising taxes rather than increasing borrowing, breaking from former Prime Minister Liz Truss’ approach that led to her resignation in 2022.
With Prime Minister Keir Starmer promising that “those with the broadest shoulders” will bear the burden, wealthier Britons may face increased taxes on capital gains, dividends, and inheritances, alongside higher social security costs for businesses. Reeves, a former Bank of England economist, has also indicated potential changes to budget rules to allow infrastructure investments aimed at enhancing economic growth.