Rachel Reeves has described the UK as being in an economic “doom loop” as she hits out at the government’s newly announced tax hikes.
Labour’s shadow chancellor said the “mess we are in is the result of 12 weeks of Conservative chaos, but also 12 years of Conservaitve economic failure”.
Chancellor Jeremy Hunt announced public spending cuts and a raft of tax hikes for everyone today as he raised £55bn to balance the books.
This includes an income tax grab that will see all thresholds either frozen or slashed, which will inflate the average wage earner’s tax bill by hundreds of pounds.
It comes as today the Office for Budget Responsibility (OBR) says the UK is already in a recession and that living standards will “fall 7 per cent over two years, wiping out eight years’ growth”.
Reeves said the government was delivering “higher taxes, higher inflation and higher mortgages”.
“This government has forced our economy into a doom loop – where low growth leads to higher taxes, lower investment, squeezed wages and the running down of public services,” she said.
“All of which hit growth again. And instead of learning from the mistakes of the last decade, they’re simply repeating them.
“We need to break free from this vicious cycle of stagnation, with fairer choices and a proper plan for growth.”
The government has argued that the UK’s spending during Covid, and recent energy price freezes, means government borrowing must now be cut.
This has been made more urgent as the UK’s government borrowing costs have risen in previous months.
The chancellor froze the main National Insurance thresholds and the inheritance tax thresholds for a further two years as a part of the tax grab today.
Businesses also face an increase in National Insurance Contributions, with the employer threshold frozen until 2028.
The dividend allowance will be slashed from £2,000 to £500m, while the capital gains tax allowance will be slashed from £12,300 to £3,000.
HW Fisher, an accountancy firm, said Hunt was “crushing entrepreneurial spirit” with these tax hikes.
“The chancellor says he is being honest today, so let’s be honest. No-one was talking about cuts to public spending two months ago,” Reeves said.
“And no other advanced economy is cutting spending or increasing taxes on working people as they head into a recession.”
The chancellor’s statement has also been savaged by business groups, with the Federation of Small Businesses calling it “high on stealth tax-creation and low on wealth-creation.
“While tackling inflation is essential, so are measures to create conditions for prosperity, growth and support enterprise. Today is a missed opportunity to avoid further economic slowdown,” FSB chair Martin McTague said.