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Chancellor Rachel Reeves is looking to make tax rises and spending cuts to the value of \u00a340bn in this month\u2019s Budget, government sources have told the BBC.<\/p>\n
At a political cabinet meeting on Tuesday, Reeves told ministers that filling the “\u00a322bn black hole inheritance from the previous government” would only be enough “to keep public services standing still”.<\/p>\n
Reeves is now drawing up plans to find \u00a340bn in order to avoid real-terms cuts to departments, sources say, as first reported in the Financial Times<\/a> and the Times<\/a>. <\/p>\n Reeves warned ministers there would be “difficult decisions on spending, welfare, and tax” to come in her Budget this month.<\/p>\n<\/div>\n The chancellor is finalising details of her first Budget, to be announced on Wednesday 30 October.<\/p>\n She recently said there would be “no return to austerity” under this government and promised a boost to government investment, designed to kickstart growth.<\/p>\n The chancellor is setting herself a borrowing rule which means all day-to-day spending should be funded from taxes raised, not from borrowing. <\/p>\n It is this rule which is binding the government\u2019s hands, and why they are seeking some welfare savings as well as a series of tax rises at the Budget.<\/p>\n A HM Treasury spokesperson said: “We do not comment on speculation around tax changes outside of fiscal events.”<\/p>\n In an interview with BBC Breakfast on Tuesday, the Prime Minister, Sir Keir Starmer, did not rule out a National Insurance increase for employers in the Budget.<\/p>\n Paul Johnson, director of the Institute for Fiscal Studies, told the BBC Radio 4’s Today programme the “very big hole in public finances” had been long known about, but was downplayed during election campaigning earlier this year.<\/p>\n He suggested that some of the \u00a340bn would most likely be covered by “slight changes in the fiscal rules” or by tax rises proposed by the government already.<\/p>\n “If they are looking for \u00a320bn or \u00a330bn of tax rises, in the end they will have no choice but to do something with income tax.”<\/p>\n Treasury officials are reportedly exploring National Insurance on employer pension contributions to raise Budget revenue.<\/p>\n Employers pay NI at a rate of 13.8% on all employees’ earnings above \u00a3175 per week, but pension contributions made by employers are currently exempt from the levy.<\/p>\n The prime minister side-stepped questions over whether Labour\u2019s manifesto promise not to raise taxes for “working people” covered employers’ NI too.<\/p>\n The Labour Party’s 2024 manifesto ruled out raising taxes for “working people”, such as National Insurance, income tax and VAT.<\/p>\n On Monday, Reeves said Labour’s election pledge<\/a> not to increase NI on “working people” related to the employee element, as opposed to the sum paid by employers.<\/p>\n