Labour Faces Tax Rise Pressure as Budget Deficit Grows

Sir Keir Starmer has refused to categorically rule out income tax or national insurance rises ahead of the next budget, as economic forecasts warn of a substantial shortfall in the nations finances. The National Institute of Economic and Social Research has warned that public sector borrowing and weaker economic growth could leave Chancellor Rachel Reeves with a black hole of around £50 billion. Estimates from other economists suggest the gap could be a slightly lower figure of £20 to £25 billion, but the consensus remains that fresh revenue is required to restore balance to the public coffers.

Pressed on Labour’s manifesto promise to avoid tax increases on working people, the Prime Minister instead highlighted recent cuts in interest rates, emphasising the relief this offers to mortgage holders. Responding to speculation on tax rises, Starmer said he did not recognise some of the numbers being discussed, reiterating that interest rate reductions were already improving household finances. Despite this, Downing Street sources have echoed Labour’s commitment to its key election pledges, including no increase in income tax or VAT for what it calls working people.

Ministers have also reportedly dismissed a proposal by former Labour leader Lord Kinnock to impose VAT on private healthcare insurance, which some believe could raise more than £2 billion for the Treasury. Senior governmental figures argue such a measure would place additional strain on NHS waiting lists, making it an unattractive and counterproductive solution while public services struggle to meet demand.

Parallel analysis by the TaxPayers Alliance points to a notable shift in tax receipts, with the top 1 per cent of earners expected to contribute just 26.6 per cent of all income tax this year, down from 30.7 per cent in 202122. This reduction is attributed to wealthy individuals leaving the UK in the wake of Labour’s policies, according to the data. Meanwhile, the top 1115 per cent of earners have seen their share rise to 17 per cent, and the bottom half of earners are now collectively paying 9.9 per cent of all income tax, up from 9.2 per cent.

As the government prepares for its autumn budget, the challenge remains to boost revenues without breaking campaign promises or overburdening an already stretched health service. All eyes will be on Whitehall as Labour navigates a delicate balancing act between fiscal responsibility and political accountability.