No tax hike ‘on payslips’, minister insists amid confusion over ‘working people’
Bridget Phillipson refused to say whether a small business owner earning around £13,000 in net profit would count as a working person.
Working people will not see higher taxes “on their payslip”, a minister said as she acknowledged frustrations over the Government’s refusal to spell out who will be hit by greater levies ahead of the Budget.
Education Secretary Bridget Phillipson repeated warnings that Wednesday’s financial statement will include “tough choices”, but she insisted it is a choice between investment or decline for the UK.
However, the Cabinet minister refused to say whether a small business owner earning £13,000 a year is considered a “working person” who should be protected from tax rises in Rachel Reeves’ first Budget.
Facing broadcasters on Sunday morning, Ms Phillipson was repeatedly pressed to define the Labour Government’s use of the term “working people” – who it has promised to spare from “key” tax increases.
“You are inviting me to speculate about the nature of the question that you’re asking,” she told the BBC’s Sunday With Laura Kuenssberg programme.
“What I’m saying is that when people look at their payslips, they will not see higher taxes.”
Speculation has mounted that people who make money from assets such as property could face greater levies in the Budget after Sir Keir Starmer suggested they do not fall within his definition of “working people”.
Labour had pledged in its manifesto not to raise taxes working people, explicitly ruling out increases to VAT, national insurance, and income tax.
But the Chancellor is expected to raise employers’ – rather than employee – national insurance contributions by at least one percentage point in the Budget, which could hit small businesses particularly hard.
Asked whether a small business owner who makes a net profit of around £13,000 would be considered a working person, Ms Phillipson said: “Well, we can go through a range of different hypotheticals about who may or may not be captured by tax measures that may or may not happen in the Budget.
“When Rachel is sat here next weekend you can ask her about the measures that she’s announced.
“I know it’s frustrating ahead of the Budget that I can talk about some areas, but not all of it. I appreciate your frustration.
“I would love to come and say ‘here’s all the measures line by line’, that’s not my job however – that’s for the Chancellor.”
Ministers have also refused to rule out keeping the freeze on income tax thresholds brought in by the previous government, which sees people pulled into paying higher rates through a phenomenon known as “fiscal drag”.
Ms Reeves described such freezes last year as “picking the pockets of working people” when the Conservatives continued the policy, leading to Tory accusations of hypocrisy over Labour’s own expected extension of it.
Challenged on her assertion that working people will not face a greater burden “on their payslip” in light of the prospect of the thresholds remaining frozen, Ms Phillipson told Times Radio: “I’m just not prepared to speculate on hypotheticals.”
Further confusion was sparked on Sunday after it was reported the Chancellor would not announce any new freeports within the Budget despite a Number 10 press release on Friday saying five more would be unveiled.
The Financial Times quoted one Government official as having said the announcement had been a “total cock-up with the comms” and that instead, Ms Reeves will unveil “next steps” for five of the existing tax-free zones.
These freeports will receive official clearance to have custom sites within their boundaries while plans for a separate “investment zone” in the East Midlands, first put forward by the Tories, will also be approved, the paper reported.
Downing Street and the Treasury did not immediately respond to requests for comment.
Despite ministers remaining tight-lipped, there are several other measures expected in Wednesday’s statement, including a cut to the earnings threshold at which employers pay their national insurance contributions.
Combined with a hike in the rate of employer contributions, this is expected to raise around £20 billion as Ms Reeves seeks to revive public services and put the economy on a firmer footing.
Some £1.4 billion has been announced already to rebuild crumbling schools, as well as a tripling of investment in free breakfast clubs, £1.8 billion for the expansion of Government-funded childcare, and £44 million to support kinship and foster carers.
Speaking on Sunday, the Education Secretary said she would “love to go faster” on bolstering protections for vulnerable children, but that it will “take time”.
“We have seen the steady erosion of family support services,” she said.
“But it will take us time, and I would love to go faster on some of this – I absolutely would. But there is lots that we can do right now.”
The Cabinet minister also declined to guarantee that nurseries would be protected against employer national insurance rises, saying only that she was committed to improving early years.
“They can be assured that I work with them to deliver a brilliant early years and child care system,” she said.
Ms Reeves is also expected to target public sector net financial liabilities (PSNFL) as her new measure of debt rather than the current yardstick of underlying public sector net debt.
A shift to PSNFL would give her greater headroom to meet her debt reduction target, because it includes a wider mix of state assets and liabilities – notably including expected student loan repayments to offset some of the liability.
Capital gains tax, inheritance tax and fuel duty are among some of other levers Ms Reeves could potentially pull to raise revenue as she seeks to put the economy on a firmer footing.
In an interview with the Observer, she suggested she wants Wednesday to match the greatest moments in Labour’s economic history.
She said: “In 1945, we rebuilt after the war; in 1964, we rebuilt with the ‘white heat of technology’; and in 1997, we rebuilt our public services. We need to do all of that now.”
Meawhile, in an op-ed for the Sun On Sunday she said the statement would be a “Budget for the strivers”.
Shadow science secretary Andrew Griffith said Labour “essentially lies to the British people” in terms of its plans, and he compared the party’s behaviour to the “worst form of dodgy car hire firm”.
“Already after 110 days, I think people are seeing that this Government came in on a false prospectus that things would be easy,” he said.
“They essentially lie to the British people in terms of their plans not to increase national insurance… not to change the fiscal rules.”
Paul Johnson, the director of the Institute for Fiscal Studies, warned that some public services could continue to feel squeezed despite “one of the biggest tax-raising budgets ever”.
He told Sky News: “Justice, local government, social care, police, prisons, they’re all really struggling at the moment.
“So again we’re in this really tough position where we could have the biggest tax-raising budget, or one of the biggest tax-raising budgets, ever and yet a lot of public services still feeling squeezed.”
Former Bank of England governor Mervyn King warned higher borrowing would also hit longer-term interest rates, which would “bear the brunt”.
Lord King added: “Certainly if you borrow more, it doesn’t matter how you dress it up in terms of a different fiscal rule, people know that higher borrowing means higher borrowing, and financial markets and people who lend to the Government will demand a slightly higher interest rate to compensate for the higher amount of debt that they’re being asked to finance.”
