Britain’s Labour Party bets on big taxes, borrowing to boost economy
Subscribe to enjoy similar stories. LONDON : Britain’s new Labour government presented its plan to jolt the U.K. out of years of moribund growth: more taxes and a bigger state.
Standing in Parliament, Chancellor of the Exchequer Rachel Reeves Wednesday said her government will raise taxes by £40 billion, equivalent to around $51.9 billion, one of the biggest tax hikes in a generation, and borrow billions in the coming years to invest in the country’s infrastructure. Labour is betting that an injection of state funds can end a decade of low growth by kick-starting business investment while extra tax receipts are used to patch up Britain’s public services. “The only way to drive economic growth is to invest, invest, invest," she said, pledging to increase capital investment by £100 billion over the next five years.
The announcement marks a further shift in British government orthodoxy away from a smaller state and toward more European levels of state spending. It also marks a shift in tone: Previous Conservative governments also ended up hiking taxes to keep public finances steady, but vowed to bring them back down. Labour is indicating they are likely here to stay.
The plan isn’t without risk. Business groups have warned that the higher taxes, which largely land on the shoulders of employers, could end up deterring hiring and investment. The U.K.
government’s long-term borrowing costs crept up slightly in the weeks before the budget announcement as investors digested the likely scale of debt issuance needed to fund the plan. U.K. government debt yields fell slightly after the budget was announced on Wednesday.
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