(Bloomberg) -- Chancellor of the Exchequer Rachel Reeves said she was wrong to tell British voters before the election that Labour wouldn’t announce new tax increases, even as she assured them there wouldn’t be a repeat of her first budget in the coming years.
Reeves was asked during an interview on Sunday to explain comments from June, when she said she had “no plans to increase any taxes beyond those which we have already set out.” Such remarks have come under greater scrutiny since Reeves unveiled a £40 billion ($52 billion) package of revenue-raisers, including measures such as changes to the payroll levies and inheritance tax that weren’t specially mentioned in the Labour Party’s campaign manifesto.
“I was wrong on the 11th of June,” Reeves said on Sky News, explaining that she underestimated the size of the UK’s budget gap. “Just under a month after I said those words, I was taken into a room by the senior officials at the Treasury, and they set out the huge black hole in the public finances.”
Reeves’ appearance on the UK’s Sunday talk shows was the latest effort in a media blitz to sell a budget that not only included the biggest tax increase in decades, but a huge rise in borrowing. Concerns about the spending plan’s impact on inflation — and thereby the Bank of England’s path toward interest rate cuts — prompted a two-day sell off in government bonds last week before prices stabilized on Friday.
Her comments represent Reeves’ most candid admission yet that Labour had gone further on taxes than she and Prime Minister Keir Starmer signaled before being swept into office in the July 4 election. Julia Lopez, the Conservatives’ shadow culture secretary, said Sunday that Starmer and Reeves “did not have the courage to be honest with people during the election.”
Weeks after taking power, the UK’s first female chancellor disclosed what she said was a £22 billion spending gap left by the outgoing Conservative government, raising the stakes for Labour’s first budget in 14 years.
Nevertheless, Reeves insisted that she could avoid announcing another similar spending plan before the next election, despite concerns from some ministers that their departments remain short of funding. Economists have predicted that the chancellor may need to come back with more tax rises to avoid a return to austerity for many government departments later in the parliamentary term.
“There is no need to come back with another budget like this,” Reeves told Sky News, adding that she hoped to have “wiped the slate clean” with last week’s program. “We never need to do that again.”
Starmer and Reeves will have to contend with a more assertive opposition after the Conservatives elected former Business Secretary Kemi Badenoch as its leader. Badenoch indicated during an interview with the BBC that she would seek to reclaim their mantel as the party of lower taxes.
The new Tory leader acknowledged that the party had let the tax burden get “too high” during its tenure in Downing Street. “If we start from the assumption that we can just tax and borrow our way through, we will keep getting poorer, and that is what has been happening, and we were a part of that,” she said, a day after edging out former Immigration Minister Robert Jenrick in a national vote of Conservative Party members.
While Badenoch is the first Black leader of major British political party, she indicated she wouldn’t seek to leverage that significance as opposition leader. In fact, she dismissed Reeves’ own efforts to highlight her status as the first female chancellor in 800 years, calling it a “very low glass ceiling” in a country that has had three female prime ministers.
For her own part, Reeves acknowledged that there would be “losers” from her first budget after warnings that businesses were likely to pass on tax increases to workers through lower wage growth and higher prices. Forecasts from the Office for Budget Responsibility showed that taxes are set to rise to a post-World War II high as a share of the economy.
Reeves also said she was “not satisfied” with the budget’s expected boost to growth. The OBR forecast that growth would pick up to 2% next year before slowing to more pedestrian rates. That was little changed from the budget watchdog’s projections back in March under the previous Conservative administration and even suggested weaker growth from 2026 onwards.
“Those aren’t the summit of my ambition,” she said. “We’ve got more to do on growing our economy.”
(Updates with comment from Conservative shadow minister in fifth paragraph.)
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