Budget 2024: Rachel Reeves is right to raise tax as she cleans up the mess left behind by the Tories

The success of the Budget will determine whether Prime Minister Keir Starmer secures a second term. Chancellor Rachel Reeves’ strategy is to claim £40bn of tax rises are necessary to fix an economy wrecked by the Tories.

She believes painful early decisions will put the UK on a path to recovery and deliver the revenues needed to turn the corner on austerity.

The central issue is whether the most dramatic Budget in a generation will get the economy growing. Many of the tax rises she announced, while unpopular with the voters who will have to pay them, pass the fairness test.

Capital gains tax is at curiously low levels and the rises announced by Reeves are long overdue.

Extra taxes on private jets, private school fees and energy profits should also be applauded by anyone on the centre-left.

She also contrasted her wealth taxes with backing workers through a higher minimum wage and scrapping frozen income tax thresholds.

However, increasing national insurance contributions for employers by £25bn is a risky move that could backfire.

Labour’s recovery plan is largely based on the private sector creating new jobs and boosting wages.

NI is a tax on hiring staff and many firms may find the money by scaling back on planned pay rises or cancelling plans for expansion.

Part of the problem for Reeves and Starmer was an overly cautious approach to tax during the general election.

By ruling out rises in income tax, corporation tax and NI for workers, they backed themselves into a corner.

Increasing corporation tax, which applies to profits enjoyed by shareholders, would have been a better move.

Starmer also has to learn from the mistakes made in the run up to the Budget.

Announcing cuts to the Winter Fuel Payment in isolation was a disaster that led to a dripping roast of negative headlines.

A lack of discipline on accepting free hospitality and clothes also undermined the ‘tough choices’ message central to the Budget.

Scottish Labour leader Anas Sarwar, who wants to be the next First Minister, will be biting his nails.

He has joint ownership of the Starmer project insomuch as he needs Government success to be a springboard for Bute House.

The ‘change’ message Sarwar used so effectively at July's general election will need serious refinement after a difficult opening for Starmer.

Scottish politics

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But both Labour leaders can overcome these short-term difficulties.

The Tories left behind a mess of epic proportions and the UK has a team in Downing Street willing to level with the British public.

After years of shallow Tory populism, enough voters are likely to believe early pain will lead to long-term gain.

And the contrast between rewarding workers and taxing wealth is a good one.

Labour’s challenge is ensuring the rhetoric of a better tomorrow fast becomes a reality.

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