Britain’s New Chancellor Announces Biggest Tax Increase in 30 Years

Britain’s new chancellor of the exchequer, Rachel Reeves, announced a significant tax increase in her first budget, accusing the former Conservative government of undermining Britain’s public services. The tax increase is the largest in 30 years and aims to raise £40 billion ($52 billion) per year, primarily from businesses and the wealthy.

The move is part of Labour’s plan to “rebuild” the United Kingdom, but it is expected to have limited impact on growth and public spending. Reeves, a former Bank of England economist, emphasized that she would not let public debt swell, citing the former Conservative Prime Minister Truss’s 2022 unfunded tax cut plan that crashed bond markets.

The tax increase will bring the government’s tax revenue as a share of economic output to a record high of 38.2% by the end of this decade. This proportion will be higher than this year’s 36.4% and more than 5 percentage points higher than before the epidemic. According to the Institute for Fiscal Studies think tank, the £40 billion tax increase is equivalent to 1.25% of economic output.

Reeves announced several revenue-raising measures, including an increase in the social security rate paid by employers by 1.2 percentage points to 15% starting in April next year. The threshold for companies to start paying social security contributions will also be lowered. These measures will increase an additional £2.5 billion in revenue per year for five years.

Other revenue-raising measures include changes to capital gains taxes, estate taxes, tax rates for private equity executives and non-domiciled residents, as well as for users of private jets and private schools. The budget also paves the way for increased debt issuance to finance long-term investments and speed up the development of the British economy.

The market’s reaction to the budget was cautious, with the pound’s exchange rate falling slightly against the dollar, below $1.30. The GBP/USD daily chart shows the pound’s exchange rate at 1.2949/50 at 11:31 Beijing time on October 31.

Key Points:

• Britain’s new chancellor, Rachel Reeves, announces biggest tax increase in 30 years.
• The tax increase aims to raise £40 billion ($52 billion) per year, primarily from businesses and the wealthy.
• The move is part of Labour’s plan to “rebuild” the United Kingdom.
• The tax increase will bring the government’s tax revenue as a share of economic output to a record high of 38.2% by the end of this decade.
• The market’s reaction to the budget was cautious, with the pound’s exchange rate falling slightly against the dollar.