Rachel Reeves, the new Chancellor of the Exchequer, will be presenting her second budget on November 26. She is preparing for one of the most important announcements she’ll ever make. All eyes are on her likely use of stealth taxes, a strategy that her predecessors have previously employed. With the UK economy facing significant challenges, Reeves cites a review of the economic outlook as a critical factor in her decision-making process regarding taxation.
In her next budget, Reeves has finally hinted that she’s turned away from her previous scheme to raise income tax. Rather, she is set to lead the way in considering new stealth taxes as revenue-generating vehicles. This use has excited critics who worry that these taxes are sometimes opaque and regressive, hurting lower-income households more. The Chancellor’s predecessors used these exact tactics during very different economic conditions. Prominent individuals such as George Osborne, Norman Lamont, Gordon Brown and Kenneth Clarke, to name just a few.
Reeves intends to engage the public on the difficulties of funding 21st century public services. She points out how the Conservative Party’s double decade of austerity has severely weakened the enforcement side of the tax regime. She has shined a big bright light on the fiscal crisis facing our country. According to her calculations, Britain remains firmly in the red. That grim economic picture definitely lends urgency to her budgetary proposals.
Also included in Reeves’ budget are ambitious plans to abolish or reform council tax. If upheld, this decision would deeply impact the relationship between local democracy and public services. Key to that challenge is her need to honour her manifesto pledge by not increasing the “big three” taxes – income tax, national insurance or VAT. Her increasing reliance on stealth taxes might be a sign that we’re entering an era of more obscure forms of taxation. Stealth taxation takes the form of hidden charges and levies. These hidden costs aren’t what jumps out at taxpayers on their face, but they can have a huge impact on your bottom line.
As she testified in an enlightening recent speech, Reeves deeply feels that claim. She said after a decade of state-level austerity, rebuilding the state’s foundation should be everyone’s responsibility. This demand for shared accountability is indicative of her deep knowledge of the societal ramifications of fiscal policy. The Chancellor’s approach aims to address not only the economic deficit but the social fabric of the nation, which has been tested during difficult economic times.
Despite the pressing need for reform and revenue generation, Reeves has opted against introducing a clearer and fairer annual tax on wealth—an alternative that many economists and social commentators have advocated for in light of growing income inequality. Her budget likely contains “bolt-ons” to a system that has already seen extensive loss of credibility. These concerns call into question whether these measures are truly effective or equitable.
As November 26 draws ever closer, all eyes will be on shadow chancellor Rachel Reeves. She’ll need to manage the intricacies of fiscal policy amid a hostile climate. The decisions she makes over the next few years will largely determine whether our national economy flounders or flourishes. Equally, they will determine how the public judges her leadership and vision for the future of public services in the UK.