Reeves braces for major Budget clash with businesses over minimum wage and tax rises
Rachel Reeves is set to spend money to combat the rising cost of living, but she faces a major clash with businesses in her make-or-break budget.
With the survival of Sir Keir Starmer’s government at stake, the chancellor looks ready to appease the backbenchers by introducing a raft of measures to help Britain’s poorest – hinting he will pay for it by taxing the rich.
Pledging to take “the fair and necessary choices” to help bring down the spiraling cost of living, she has also committed to cutting hospital waiting lists and bringing down the national debt.
This came just hours after Ms Reeves announced an inflation-busting increase to the minimum wage; This will mean pay rises for millions of workers, and the chancellor has promised those on lower incomes will be “appropriately rewarded” for their work.
But businesses quickly responded by warning that the move would increase unemployment and negatively impact economic growth.
Ahead of Wednesday’s Budget speech, Ms Reeves said: “I will hold fair and necessary elections to deliver on our promise of change.
“I will not return Britain to austerity or lose control of public spending by borrowing recklessly.
“I will take action to help families with living expenses… shorten hospital waiting lists… reduce the national debt.
“And I will continue to push forward with the greatest growth drive in a generation.”
He added: “Investment in roads, rail and energy. Investment in housing, security and defence. Investment in education, skills and training. So together we can build a fairer, stronger and safer Britain.”
But despite the promise of “fairness”, new YouGov polling has found that six in 10 (59 per cent) people on low incomes think they will be most affected by the Budget. Meanwhile, the Focal Data survey revealed pessimism in the UK; 73 percent of respondents believe the country’s financial situation is in poor shape.
The budget will also include an increase in state pensions and a freeze on rail fares and prescriptions. Ms Reeves will also confirm that the 15-year freeze on fuel duty will continue, including the continuation of the temporary 5p cut introduced by the Conservative Party.
The chancellor is also expected to placate Labor MPs with a £3.5bn pledge to scrap the two-child benefit cap, which has long been blamed for keeping children in poverty.
Following Labor’s recent successful election-winning strategy in Australia, the NHS also plans to combine cost-of-living measures with extra resources to reduce waiting times.
But with a spending black hole of at least £20bn and a need to provide her with more than £10bn of fiscal headroom, Ms Reeves appears determined to balance the books by targeting businesses and the wealthy.
Plans to extend the sugar tax on milkshakes and lattes have already been confirmed, as well as introducing a tourist tax on overnight hotel and holiday stays.
It is also preparing to impose a mansion tax on the most expensive properties, with speculation that capital gains tax will be increased, and will impose a bank tax and a gambling winnings tax.
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There will also be a pay-per-mile tax on electric vehicles, which could offset the £1.5bn subsidy it will offer for the purchase of electric vehicles.
But business groups have already said they are ready to go to war with the chancellor over measures they believe will destroy hopes for economic growth.
There is outrage after she warned Ms Reeves at Monday’s CBI conference they would “face death by thousands in taxes”, arguing that a rise in the minimum wage would eliminate jobs.
This includes an 8.5 per cent increase in the hourly minimum wage for those aged 18 to 20 to £10.85, and a 4.1 per cent increase in the living wage for those aged 21 and over to £12.71 per hour. Meanwhile, 16 and 17-year-olds, as well as those on apprenticeships, will see a 6 per cent increase to £8 per hour.
Anna Leach, chief economist at the Institute of Directors, warned the move would increase unemployment among young people.
He said: “The sharper rise in the youth rate is particularly worrying because it is likely to accelerate job loss among young people – at a time when almost a million people are currently not in education, employment or training.”
UKHospitality chief executive Kate Nicholls, already reeling from the tourist tax, said increases in minimum wage rates were “another cost for hospitality businesses to offset at a time when they are already being taxed”.
The Federation of Small Businesses (FSB) pointed out that the latest Small Business Index (SBI) showed 34 per cent said labor costs were among the top three barriers to growth and 20 per cent planned to reduce staff between October and December this year.
However, unions welcomed the move. TUC general secretary Paul Nowak said the pay rise would “make a real difference for the lowest paid”, while Youth Employment UK said it was “a vital and necessary step in the government’s ongoing journey to make work make money for everyone”.
Meanwhile, the Conservatives accused Ms Reeves of “trying to win your eyes” with her budget plans.
Shadow Chancellor Sir Mel Stride said: “Rachel Reeves chose higher welfare, higher taxes and chose to send the bill to hard-working families.
“Britain deserves better than a government that mistakes recklessness for compassion and leaves those who play by the rules to pay the price.”
