LONDON (AP) - U.K. Treasury Chief Rachel Reeves announced on Tuesday her intention to raise taxes in the upcoming budget, set for November 26, arguing that the U.K. economy is in worse shape than initially understood when the government took office last year. In an unusual pre-budget speech, Reeves prepared the public and financial markets for the likelihood that she would break an election promise not to increase income taxes or sales tax.
Reeves emphasized the need for collective contribution towards building a better future for Britain, stating, "If we are to build the future of Britain together, we will all have to contribute to that effort." This statement hinted at potential broad tax increases as the government seeks to address economic challenges.
During her speech, Reeves pointed to several economic pressures contributing to her decision, including interest payments on the U.K.'s £2.6 trillion ($3.4 trillion) national debt and a disappointing productivity assessment from the government's economic forecaster. "The productivity performance that we inherited from the last government is weaker than we first thought," she explained, noting that the country is investing more but receiving less in return.
Furthermore, Reeves highlighted that Britain faces additional global challenges, including U.S. President Donald Trump's tariffs, volatile supply chains, and rising borrowing costs. She asserted that while many economic issues are worldwide, the U.K. is particularly vulnerable due to the high debt accumulated over 14 years of what she termed "economic mismanagement" by the previous Conservative government, which was in power until 2024.
The British economy, recognized as the sixth-largest globally, has been underperforming since the global financial crisis of 2008-2009. Since the Labour Party came to power in July 2024, the government has struggled to deliver the promised economic growth. High inflation remains a persistent issue, and sluggish growth has complicated efforts to repair public services and address the rising cost of living.
Critics argue that Reeves has exacerbated economic difficulties by taking a pessimistic approach and increasing taxes on businesses in her previous budget. While she did not detail specific tax increases in her recent speech, she assured that the upcoming budget would prioritize "growth and fairness," focusing on strengthening the overburdened public health service, reducing national debt, and curbing inflation to alleviate the cost of living for citizens.
Reeves's preparations for this significant budget come amidst mounting criticism, particularly following a newspaper report alleging she illegally rented out her London property without local authority licensing. She addressed the issue, calling it an "inadvertent mistake," and received a statement of support from Prime Minister Keir Starmer, who opted not to take formal action against her.
As the November budget approaches, Rachel Reeves faces a pivotal moment in her tenure, where her decisions will have far-reaching implications for the U.K.'s economic landscape and the government's credibility in managing financial challenges.
