Keir Starmer’s Labor Government announced this Wednesday the largest tax increase in recent history in the United Kingdom, as well as state investment, in its first budget of the State since he came to power last July.
Economy Minister Rachel Reeves said that increasing the tax burden especially on companies will raise 40 billion pounds (almost 50 billion euros), intended in part to eliminate the budget deficit of 22 billion (26.34 billion euros). ) that he claims to have inherited from the conservatives.
At the same time, the first female ‘Chancellor of the Exchequer’ revealed investment plans in education, health, defense and transport, which will mean an annual increase in spending of around £70 billion (€84 billion), according to the Accountability Office. budget report (OBR).
Greater burden on companies
The public finance watchdog estimated that, based on the new budget, the British economy will grow 1.1% this year, compared to 0.1% in 2023, and 2% in 2025, above what was forecast in March, under the previous Tory Government.
However, the OBR lowered the forecasts for 2026, from 2 to 1.8%; from 1.8 to 1.5% in 2027; and from 1.7 to 1.5% in 2028, although he admitted that the March reference figures are now invalid because the conservative Executive hid data from him.
In his parliamentary statement Reeves reported that starting in April the social security contribution of companies will be raised from 13.8 to 15% – and the salary threshold at which they begin to pay it will be lowered -, with which he hopes to raise 25,000 million pounds (almost 30 billion euros) annually.
“It is a difficult decision but it is the correct one,” said the minister, who announced that she will reduce taxes on commercial premises in the retail, leisure and hospitality sectors by 40% and will reduce the tax on draft beer.
The capital gains tax will also rise, which will increase from 10 to 18% in its lower band and from 20 to 24% in the upper band, and the corporate tax will remain unchanged this term, at 25%. .
The rate on the profits of hydrocarbon companies will increase to 38% but the tax on gasoline will be frozen, and the tax on vaping devices will increase.
Bet on investment
The minister explained that she modified the fiscal rules – which successive Administrations apply to give confidence to the markets -, changing the way debt is computed, in order to be able to borrow more for investment.
In this sense, it will allocate 2,900 million pounds (3,475 million euros) more to the defense budget, in order to reach 2.5% of the gross domestic product (GDP), with 3,000 million (3,600 million euros) additional in military support for Ukraine.
Reeves said he will allocate 6.7 billion pounds (more than 8 billion euros) to improve public schools and 5 billion pounds (almost 6 billion euros) to support the construction of new affordable housing.
The minister increased the budget of the depleted national health service (NHS) by 22.6 billion pounds (27 billion euros), with a waiting list of 7.6 million people, and promised to complete the construction of a high-speed train line.
He also revealed that he will grant 11.8 billion pounds (14.124 million euros) to compensate the victims of a scandal in the 1970s for contamination of blood transfusions and 1.8 billion (2.155 million euros) to compensate hundreds of directors of mail offices. couriers who were unfairly accused of fraud.
Labour’s budget, which also foresees an increase in the minimum wage in April, caused fluctuations in financial markets, which are weighing the effect on debt, while some analysts warned that its success will be judged on whether it manages to increase economic growth.
Reeves defended that his decisions “are the right ones to restore stability to public finances, protect workers, fix the NHS and rebuild the UK”, and challenged those who dispute them to propose alternatives.
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