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RACHEL Reeves has sent her strongest indication yet that voters should expect tax rises in the upcoming Budget.
Delivering what her opponents were characterising as an “emergency” statement on Tuesday morning, the Chancellor signalled that income tax would go up, in what would amount to Labour ripping up another of their flagship election pledges.
The party already put up employer National Insurance contributions – promising during the election to keep rates as they were.
Speaking from Downing Street, Reeves pointedly refused to rule out increasing income tax as reporters asked whether she would make a “mockery” of voters who believed Labour’s vow not to raise the levy.
It comes after Starmer (above) also notably failed to rule out increasing income tax at Prime Minister’s Questions last week, despite previously having been happy to repeat his election campaign promise on the record.
While income tax is mostly devolved to the Scottish Parliament, voters north of the Border would be wrong to think this makes them immune to decisions taken in Downing Street.
As the Fraser of Allander Institute has argued, the devolution of income tax could be said to have made the budgets of the Scottish and UK governments more, not less, linked.
The think tank, based at Strathclyde University, points out that because of something called the Block Grant Adjustment, income tax rises at a UK level reduce Scotland’s Block Grant, the lump sum of cash which is sent from Westminster to Holyrood.
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One policy which is being floated in Westminster is increasing the basic rate of income tax by 2p while cutting employee National Insurance contributions by the same. This, the Government reportedly calculates, would raise about £6 billion by increasing tax on pensioners, the self-employed, investors and landlords.
While that might be an attractive option for Labour, it still causes headaches for the Scottish Government, which must make up a shortfall in the Block Grant, caused by the income tax increase.
According to analysis by the Fraser of Allander Institute, a 2p increase in the basic rate of income tax would cut the Scottish Budget by £972 million. This would need to be covered by the Scottish Government increasing its tax take or cutting spending.
Hence the SNP in Westminster cry betrayal while their colleagues in Holyrood demand consultation .
The party’s economy spokesperson Dave Doogan said that Labour “misled voters”, adding: “Labour stood on a manifesto promise of not increasing taxes - it’s clear they knew this wasn’t going to be true.
“So the Chancellor is back with another crisis budget making more excuses for the mess the Labour Party has created.
“Public finances in a worse state than when they entered Downing Street, and the cost of living soaring – with energy bills, food prices and inflation all rising.”
Meanwhile, Scottish Finance Secretary Shona Robison has warned that Scotland “must not be left as an afterthought”.
The timing of Reeves’s Budget has already upset Holyrood ministers. The event has been put off until virtually the last minute, meaning that the administration in Edinburgh has much less time than had been expected to draw up its own fiscal plans, which are predicated on the money it gets from the UK Government.
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