By Judith Mora
London, Oct 30 (EFE).- The Labour government led by Keir Starmer announced on Wednesday a rise in state investment and the highest tax increase in recent UK history, in its first budget since taking office in July.
The Chancellor Rachel Reeves stated that the increase in the tax burden, primarily on businesses, would raise 40 billion pounds (52 billion dollars), partly aimed at eliminating a budget shortfall of 22 billion pounds (28.6 billion dollars) that they claimed to have inherited from the Conservatives.
Reeves also revealed investment plans in education, healthcare, defense, and transportation, which will result in an annual spending increase of about 70 billion pounds (91 billion dollars), according to the Office for Budget Responsibility.
Increased burden on businesses
The fiscal watchdog estimated that, based on the new budget, the UK economy will grow by 1.1% in 2024, up from 0.1% in 2023 and by 2% in 2025, higher than forecast in March under the previous Tory government.
However, the OBR lowered its forecasts for 2026 from 2% to 1.8% and to 1.5% in 2027 and 1.5% in 2028, although it admitted that the reference figures from March are now invalid because the Conservative government withheld data.
In her parliamentary statement, Reeves announced that from April the employer’s contribution to National Insurance will rise from 13.8% to 15%, which is expected to raise 25 billion pounds (32.5 billion dollars) a year.
“The choices that I have made today are the right choices for our country,» said the Chancellor, who indicated that she would cut business rates for the retail, leisure, and hospitality sectors by 40% and reduce the tax on draft beer.
Capital gains tax will also increase from 10% to 18% in the lower band and from 20% to 24% in the upper band, while corporation tax will remain unchanged at 25%.
The tax on profits of oil and gas companies will rise to 38%, but the petrol tax will be frozen, and the tax on vaping products will rise.
Focused on investment
The Chancellor explained that she changed the fiscal rules (used by successive governments to reassure markets), changing how debt calculates to allow more borrowing for investment.
In this regard, she will allocate an additional 2.9 billion pounds (3.77 billion dollars) to the defense budget, aiming to reach 2.5% of GDP, with an extra 3 billion pounds (3.9 billion dollars) in military support for Ukraine.
Reeves stated that 6.7 billion pounds (8.71 billion dollars) would go towards improving public schools and 5 billion pounds (6.5 billion dollars) to support the construction of new affordable housing.
The minister increased the budget for the beleaguered National Health Service by 22.6 billion pounds (29.38 billion dollars), which has a waiting list of 7.6 million people, and committed to completing the construction of a high-speed rail line.
She also revealed that 11.8 billion pounds (15.34 billion dollars) would compensate victims of a 1970s scandal involving contaminated blood transfusions and 1.8 billion pounds (2.34 billion dollars) for compensation to hundreds of postmasters wrongfully accused of fraud.
Labour’s budget, which includes an increase in the minimum wage in April, has caused volatility in financial markets as they weigh the impact on debt, while some analysts have warned that its success will be reflected if it boosts economic growth.
Reeves defended that her decisions were the right ones, «to restore stability to our public finances. To protect working people. To fix our NHS. And to rebuild Britain.» EFE
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