Fears are growing that Labour could be planning a new tax raid after Rachel Reeves refused to repeat her recent pledge to leave rates unchanged.
The chancellor was pressed on the issue in the Commons by shadow chancellor Mel Stride, and again at a conference in the north of England, over her promise last week to the CBI conference.
With her next major fiscal statement expected in the spring, there is also confusion over Labour’s economic policy with briefings that the focus is going to shift from growth to living standards.
Sir Keir Starmer is set to outline the new focus in a major speech on Thursday resetting the government’s agenda after just five months in office following a barrage of criticism over the Budget.
With MPs voting through the controversial increase in national insurance contributions today, Mr Stride pressed Ms Reeves on whether she would stick by her pledge at the CBI conference.
But the chancellor repeatedly declined to guarantee that there will be no more borrowing or tax rises following her first Budget.
Mr Stride asked whether Downing Street has "changed its mind", or if Ms Reeves "spoke without thinking" when she told business chiefs she would not repeat her Budget hikes.
At the CBI conference, the chancellor sought to reassure business leaders there would be no repeat of the £40 billion tax hikes announced in her first Budget, insisting that the public finances had been put on a stable footing and services would now have to live within their means.
“I’m really clear, I’m not coming back with more borrowing or more taxes,” she told business leaders at the event.
But Ms Reeves was asked multiple times to re-commit to no more borrowing or taxes at Treasury questions on Tuesday, to which she replied that the government will "never have to repeat a Budget like that".
In the Commons, Mr Stride said: "When she recently pledged to the CBI that she would not be raising taxes again, did she mean it?"
Ms Reeves replied: "At the Budget in October, which (Mr Stride) knows, we had to fix a £22 billion black hole in the public finances, and of course some of that black hole comes from the fact that we are the only G7 economy where employment is lower than it was before the pandemic, when he was presiding as work and pensions secretary in the previous government.
"So we did have to raise taxes to fund our public services, but never again will we have to repeat a Budget like that, because we have now wiped the slate clean and drawn a line under the mess created by the last government."
The exchanges have raised fears over a spring tax raid.
Mr Stride said: “I think there is a risk of tax rises in the future given how tight the chancellor’s fiscal headroom is and the risks that lie ahead.”
John O’Connell, chief executive of the TaxPayers’ Alliance, said: “Taxpayers will be genuinely fearing a spring tax raid in the new year.
“Labour have clearly abandoned any pretence that they’re committed to economic growth and fiscal prudence.
“Rachel Reeves should deliver on the promise she made just weeks ago to not impose any more punishing tax hikes on businesses and households.”
"If the Government believes growth is too difficult to achieve in Britain they should be asking why, and doing something about it. Targeting a rise in living standards, real wages, or GDP per capita would all be welcome if the focus remains on growth."
Meanwhile, Sir Keir is preparing for a major shift in emphasis by his government from prioritising economic growth to focussing more on living standards.
After a difficult first five months in office, the prime minister and his chancellor are on the verge of ending their all-out pursuit of economic growth, which had been the platform of their election pitch before the summer election.
With the Office of Budget Responsibility also warning that economic growth is unlikely to go higher than 2 per cent following a Budget with £40 billion of tax rises, the chancellor and Sir Keir are understood to be looking for a different benchmark.
There are also political concerns that high economic growth in the US from the Biden administration failed to translate into votes in the presidential election for the Democrats.
Sources close to Ms Reeves have denied that she is abandoning the goal of economic growth but accept that the emphasis will change in the prime minister’s speech on Thursday.
One said: “Growth is still the goal (it was manifesto commitment and remains), on Thursday we’ll set out additional milestone re living standards.”
Another source added: “You can only improve the cost of living through growth.”
But business groups are raising concerns about the shift in policy.
Jonny Haseldine, policy manager at the British Chambers of Commerce said: “Businesses are facing tough decisions as they look to deal with significant extra cost burdens in the months to come. We are talking directly with ministers about the impact this will have, particularly on SMEs which many local communities depend on. The Budget has hit many firms hard, and Government has been left in no doubt on the strength of their feeling.
“The cost-of-living crisis and the cost of doing business - are two sides of the same coin. They can’t be dealt with in isolation. Boosting private sector investment is fundamental to improving the cost of living. That’s why it’s crucial that Government creates the right conditions for businesses to stay competitive and grow in communities across the UK.”
Callum Price, director of communications at the Institute of Economic Affairs (IEA), added: “The Government has talked a good game about prioritising economic growth, but their actions tell a different story. The pledge to not tax working people did not survive the Chancellor’s first budget, so we should not be surprised that she is already rowing back from her pledge to not come back for more.”
Ms Reeves tried to calm nerves among business leaders when she spoke in a “fireside chat” at the Great Northern Conference where she committed to boosting economic growth in the north of England, and announced new powers for mayors to attract international investment.
She said UK Research and Innovation and Innovate UK will collaborate with all mayors to produce joint plans that shape long-term innovation strategies and investment in places.
Defending her Budget at the Yorkshire Post’s great northern conference in Hull, Ms Reeves once again declined to repeat her “no more tax rises” promise.
She said: “I’m not going to pretend that it’s going to be easy for businesses, or indeed for charities or local authorities, to absorb, especially, the national insurance increase.
“But we made a commitment during the general election, for a reason, that we wouldn’t increase taxes on working people, because over the last few years it has been working people that have had to bear the brunt of tax increases.
“And so we said income tax, VAT and national insurance on employees would not go up, and we have managed to stick to that manifesto commitment, as well as freezing the fuel duty for another year.”
“That has meant we have had to increase taxes, particularly national insurance, but also some of the taxes on the wealthiest in society.”
