Chancellor Rachel Reeves is looking to make tax rises and spending cuts to the value of £40bn in this month’s Budget, government sources have told the BBC.
At a political cabinet meeting this morning, Reeves told ministers that filling the “£22bn black hole inheritance from the previous government” would only be enough “to keep public services standing still”.
Reeves is now drawing up plans to find £40bn in order to avoid real-terms cuts to departments, sources say, as first reported in the Financial Times and the Times.
Reeves warned ministers there would be “difficult decisions on spending, welfare, and tax” to come in her October Budget.
The chancellor is finalising details of her first Budget, to be announced on Wednesday 30 October.
She recently said there would be “no return to austerity” under this government and promised a boost to government investment, designed to kickstart growth.
A HM Treasury spokesperson said: “We do not comment on speculation around tax changes outside of fiscal events.”
In an interview with BBC Breakfast on Tuesday, Sir Keir Starmer did not rule out a National Insurance increase for employers in the Budget.
Treasury officials are reportedly exploring National Insurance on employer pension contributions to raise Budget revenue.
Employers pay NI at a rate of 13.8% on all employees’ earnings above £175 per week, but pension contributions made by employers are currently exempt from the levy.
The prime minister side-stepped questions over whether Labour’s manifesto promise not to raise taxes for “working people” covered employers’ NI too.
The Labour Party’s 2024 manifesto ruled out raising taxes for “working people”, such as National Insurance, income tax and VAT.
On Monday, Reeves said Labour’s election pledge not to increase NI on “working people” related to the employee element, as opposed to the sum paid by employers.
Leading business groups in the UK raised concerns over the potential tax rise, warning that it would “hobble” economic growth and “hammer” the hospitality sector.
The prime minister is adamant that he will not be drawn on Budget speculation in advance of the formal announcement in just over a fortnight.
That is the standard position that governments adopt given these are market-moving measures – and in this particular case the Budget will be the biggest political and economic moment for this government so far.