John Healey faced a growing Budget backlash after the Chancellor raised taxes to a record high while leaving families facing falling living standards and businesses warning of further pressure.
The first Labour Chancellor’s package included a £100 council tax rebate for 20 million homes, a delay to a planned fuel duty rise and new support for some small firms. But critics said the measures amounted to little more than short-term relief while difficult decisions on welfare, defence and public spending were postponed.
The Budget was derided by Conservative leader Kemi Badenoch as the “Gherkin Budget”, after Mr Healey highlighted tariff reductions expected to cut the price of some imported goods, including jars of pickled cucumbers.
Mrs Badenoch said the statement “does not come close to meeting the moment”, adding: “We have overspent, over-borrowed, over-taxed and are drowning in an out-of-control welfare system.”
She accused Labour of delaying difficult choices because the Prime Minister wanted to retain the option of an early general election. Sir Keir Starmer said he could “rule out calling a general election in the next 12 months”.
The Office for Budget Responsibility downgraded its growth forecast for next year to 1 per cent and warned that living standards would fall over the coming 12 months.
Its estimate for real household disposable income per person is now £420 lower than two years ago, with a recovery not expected until April 2029. OBR economist David Miles described the outlook as a “pretty grim picture”, saying real incomes were no better than before the pandemic.
The Resolution Foundation said the living standards outlook was “dire”. Its chief executive Ruth Curtice said the Chancellor had “spread the jam thin” and had left too little room to cope with an economic shock.
Overall, Mr Healey increased taxes by £7 billion a year, following £66 billion raised in Labour’s first two Budgets. The OBR said the tax burden would exceed its historic high of 37.2 per cent next year and continue rising for five years.
The Chancellor also maintained the freeze on income tax thresholds, a policy which has drawn millions of people into higher tax bands as earnings rise.
Taxes were increased for savers, landlords and banks, while an extra £5 billion a year was committed to welfare spending. Mr Healey said he would bring down the welfare bill in future, but added that reforms would be carried out “in a Labour way”.
He set a target of spending 3 per cent of gross domestic product on defence by the end of the decade, without saying how the increase would be funded. Unprotected departments including the Home Office and transport could face real-terms cuts of 2.6 per cent a year in the final years of the decade.
Paul Johnson, the former head of the Institute for Fiscal Studies, said: “The numbers add up because the numbers were made up.” He added that the Budget had failed to provide the certainty and stability needed by businesses and the wider economy.
Families and businesses count the cost
For Berkshire teacher Abigail Giles, the £100 energy relief offered some help but did not address the wider squeeze on household finances.
Mrs Giles, whose husband is an electrician, said winter energy bills had previously reached £200 in a single month and were likely to rise further. She also faces a possible £300 to £400 monthly increase in mortgage payments from November.
“It shouldn’t be this hard to get by,” she said. “I’m a teacher, James is an electrician, we’re in quite good jobs. It shouldn’t be that hard.”
Charlotte Owen, a freelance journalist from Leeds, said her husband had been pushed into a higher tax bracket after starting a £54,000-a-year social care job.
“You get higher tax, higher student loan payment and you feel like you’re back to square one,” she said. The family qualifies for the council tax relief, but Mrs Owen said it would only go so far against childcare, food and energy costs.
She said the combination of childcare expenses and uncertain freelance income could discourage parents from working more hours. The couple had also decided against having a third child because they were already “at our limit with two kids”.
Some business owners welcomed elements of the package but warned that rising employment costs would force them to raise prices or cut back.
Kyle Hyams, who runs coffee and gelato shops in south-west London, said raising the business rates relief threshold from £12,000 to £18,000 would make “a big difference”. However, he criticised the absence of a cut in VAT for hospitality and said the 3.9 per cent increase in the national minimum wage would add to employers’ costs.
“Everything we’re trying to do to grow is being hindered by the government and by the constant moving of goalposts,” he said.
Jo Bevilacqua, who runs a hair and beauty salon in Peterborough employing 16 people, said the minimum wage increase would put further pressure on her business.
“We’re going to have to put our prices up which will possibly outprice customers,” she said. “We’re definitely going to lose customers.”
Carrie Cox, a florist in Hove and lifelong Labour voter, said the Budget contained nothing that would save the high street as businesses faced higher wages, employment costs, energy bills and rents.
“I think they go after small businesses because we’re the easy touch, because we, on our own, we can’t fight back,” she said.
Mrs Cox said she felt “absolutely shattered” by the pressure on her shop, while a new red route outside her premises could reduce footfall and remove at least 20 per cent of her income.
Rhys Hackling, managing director of logistics firm Direct Connect Logistics, said hauliers needed a cut in fuel duty rather than a freeze.
His company is paying £24,000 more a month for fuel, he said, adding: “For businesses like ours which are paying £24,000 more per month on fuel it’s vital.”
Landlords, farmers and holiday firms hit by tax changes
Paul Jarvis, a Stafford landlord with three properties, said he planned to sell them after the tax rate on rental income was increased by two percentage points, on top of a previous rise.
He said the changes meant he would pay 24 per cent income tax on rent rather than the basic rate of 20 per cent. One tenant had already stopped paying rent, he added.
“It’s literally every six months they’re attacking landlords,” Mr Jarvis said, warning that the measures could contribute to a housing crisis.
Amanda Stecker, who owns six holiday cottages in the Cotswolds, criticised plans for a 5 per cent overnight visitors tax. She said 70 per cent of her guests were British and warned that the measure could damage local economies outside the peak season.
“Why are we considering taxing British people for choosing to holiday in Britain?” she said.
West Dorset dairy farmer James Bowditch said the absence of new support for agriculture was unsurprising but claimed government policy was encouraging farmers to leave the industry.
He said inheritance tax concerns meant he was having to plan for a potential £200,000 bill, adding: “There’s nothing for the farmer and nothing for the rural area.”
Francis Fulford, who lives on his family’s 800-year-old estate in Devon, described the planned annual surcharge on properties worth £2 million or more as “lunacy”.
He said he was “asset rich” but not wealthy in terms of income, and questioned how the value of a historic property and the land around it would be assessed.
There was some support for selected measures. Linda Southall, a 68-year-old building-site cleaner from Cardiff who has been unable to retire, described the statement as a “compassionate Labour budget for the people”.
She welcomed the 3.9 per cent rise in the state allowance and expected to be £391 a year better off overall, although a private pension would leave her paying £97 in tax and just above the threshold for Pension Credit.
Layla Phillips, a recent first-time buyer from Norfolk, said the proposed First Time Buyer Isa and a new equity loan scheme could help others onto the property ladder.
She welcomed the removal of the 25 per cent penalty for homeowners who bought through the Lifetime Isa scheme, but said more affordable homes were needed as properties offered through shared ownership were disappearing almost immediately.
Mr Healey insisted the measures would provide “breathing space” from an energy crisis caused by a war “we did not want”. The Prime Minister said the council tax rebate would make a “significant” difference “if you add it all up”.
But the CBI’s chief executive Rain Newton-Smith said the Budget lacked the bold measures needed to help firms invest, hire and grow, while Unison leader Andrea Egan said it fell short of Labour’s ambition for a new economic settlement.
