Rachel Reeves has declared that the mini-Budget shows that the government’s “instincts” were to cut taxes for the wealthiest after Kwasi Kwarteng announced a U-turn on plans to scrap the top rate of income tax.
The Chancellor said in a statement today: “It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country. As a result, I’m announcing we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened.”
Following the announcement, the Shadow Chancellor told Sky News: “The mini-Budget showed what their instincts were. Their instincts were to cut taxes for the wealthiest in society paid for by borrowing which, in the end, current and future taxpayers will have to pay for.
“It was obvious they weren’t going to get this through the House of Commons. They were forced into this screeching U-turn. But so much damage has already been done, with higher government borrowing costs and huge worries for people about how they’re going to afford their mortgages.”
The Labour frontbencher said: “The idea that the government can afford to give tax cuts to the wealthiest but not uprate benefits in line with inflation, I think, is grotesque. And there are many people who are saying that the government need to rethink this one as well.”
In an interview with the BBC on Sunday, Liz Truss refused to confirm whether her government will increase benefits in with inflation, telling viewers: “This is something the Department for Work and Pensions Secretary will be looking at.”
Reeves declared today that it is a “time of huge anxiety” for people but the government’s priority seems to be “cutting taxes for people who are already on big salaries or businesses who are already making big profits”.
“The government don’t just need to reverse the Budget, they need to rethink their whole idea of trickle-down economics, which is causing huge anxiety and has sent the markets into a panic,” she added.
In the interview with the BBC, the Prime Minister repeatedly refused to rule out cutting public spending. The Chancellor told BBC Radio 4 today that it was “really important” that the government stay within the spending allocations set out in 2021.
The Institute for Fiscal Studies has warned that an extra £18bn is needed in each of the next two years to restore the “real-terms generosity intended” because of higher levels of inflation than forecast.
Reacting to the Chancellor’s comments, TUC general secretary Frances O’Grady said: “The Prime Minister promised during her leadership campaign there would be no return to austerity.
“But that pledge now appears in tatters. If spending on public services does not rise in line with inflation, schools, hospitals and other vital services face a massive black hole in their budgets.
“That would be devastating for communities across the country. Public services have already been cut to the bone by successive Conservative governments. There is nothing to trim.
“If Liz Truss pushes ahead with another round of savage cuts this would be a huge betrayal of the British people and proof that her word counts for nothing.”