Brace Yourself: Major Tax Increase Coming for Middle-Class Workers

A Cabinet minister has indicated that middle-class workers may face increased taxes later this year.

Heidi Alexander, the transport secretary, stated that the government had pledged not to raise taxes on “people with modest incomes” and that Labour’s policy would be guided by the “principle of fairness”.

There have been subtle hints from ministers that Chancellor Reeves is contemplating wealth taxes in her autumn budget to address a funding shortfall worth tens of billions.

A Treasury spokesperson said, on Sunday, that the government was committed to “keeping taxes for working people as low as possible”.

In its manifesto, Labour promised not to raise taxes on “working people” ruling out increases in National Insurance, income tax, and VAT. However, Ms Alexander indicated that Ms Reeves might need to consider taxing higher earners.

On Sunday morning on Sky News with Trevor Philips, she said, “We made a commitment in our manifesto not to be putting up taxes on people on modest incomes, working people. We have stuck to that.

“We are determined, when it comes to taxation, that fairness is going to be our guiding principle.”

When asked if wealth taxes were discussed during Sir Keir Starmer’s Cabinet away day on Friday, she responded with “not directly” but did not rule out the possibility of them being implemented this year.

Her statement is the strongest sign so far that the government plans to target higher-income workers following a series of expansive reversals on benefit cuts and winter fuel payments.

The admission comes ahead of the Chancellor’s Mansion House speech this week, where it’s anticipated that she’ll announce a Thatcher-style “Big Bang” reform for the city.

It is expected that she will announce a review of private sector pensions, potentially leading to increased employer contributions under the auto-enrolment regulations. 

Ministers are worried about the rising cost of the state pension and are exploring reforms that would encourage workers to depend more on private pension schemes.

However, major business groups told The Telegraph that the move would strain struggling companies and suppress wages.

The chairman of UK hospitality, Kate Nicholls, said that pubs and restaurants would have to keep a lid on pay increases for managers and middle-income earners ”if the reforms are actually pushed through.

Craig Beaumont, the executive director of the Federation of Small Businesses, warned that the changes to pension rules would be a “nail in the coffin for job creation” and would hinder economic growth.

A recent FSB (Federation of Small Businesses) poll revealed that more small businesses anticipate downsizing or closing this year rather than expanding, marking the lowest level of business confidence in 15 years.

Ms Reeves is also expected to unveil plans to reduce financial red tape, stimulate growth by simplifying the process of hiring senior managers and commit to reforming the city’s regulatory framework to “regulate for growth”.

It’s also expected that she will reveal more measures to prevent green activists from obstructing defence investments by placing environmental, social and governance standards under the authority of the Financial Conduct Authority.

The Chancellor had planned to introduce limits on cash ISAs but dropped the proposal last week after facing criticism and outrage from building societies. 

Ms Reeves is already under pressure from Labour MPs to impose higher taxes on the wealthy, amid bleak projections for public finances if there isn’t an increase in revenue.

Several Labour figures, including the former party leader, Lord Kinnock and Welsh First Minister Baroness Morgan, have displayed their support for a flat tax on all assets exceeding £10 million.

Other politicians believe the tax rate on capital gains and dividend payments should be raised to match income tax rates. Both measures would result in higher taxes for top earners.

It is wildly anticipated that Ms Reeves will extend the freeze on income tax thresholds beyond the current 2028 deadline. This move would push more workers into higher tax brackets and generate between £8 billion and £10 billion in additional revenue.

The shadow business secretary, Andrew Griffith, said that Labour’s proposed employment rights pose the risk of “dragging Britain back to the worst economic mistakes of the 1970s”, adding that they would “price people out of jobs, deter investment, and send small businesses to the wall”.

Britain’s independent fiscal watchdog has already indicated that the plans will likely have a “net negative” effect on the economy, which could be quite “significant”.

Labour hasn’t been able to define “working people” since making the promise to protect them.

In June, Sir Keir said they were “people who earn their living, rely on our [public] services and don’t really have the ability to write a cheque when they get into trouble”.

Ms Reeves seemed to argue the point; he made the following day, explaining her definition: “Working people are people who go out to work and work for their incomes.

“Sort of by definition, really, working people are those people who go out and work and earn their money through hard work.”

Credit: Sky News | LBC

The party has faced accusations of breaking its ’promise in last year’s budget when Ms Reeves raised employer National Insurance contributions. This was a move that economists warned would likely lead to workers experiencing reduced real-term wages.

Raising business taxes again might enable Ms Reeves to maintain her promise, but companies have warned that they may be forced to close or lay off staff just to survive.