Rachel Reeves will use one of the most crucial budgets in recent times to call on businesses to pay more tax to help the NHS recover, amid warnings that the health service has a £9 billion hole in its finances.
The chancellor is expected to stake her reputation on a tax hike budget aimed at resetting public finances. She has already faced cabinet skirmishes over the funding revealed alongside the statement. However, Reeves is believed to believe the public will accept a multibillion-dollar increase in corporate taxes if it is tied to repairing the health care system’s finances.
The Observer has seen new research, commissioned by an influential think tank with close links to the Treasury and No 10 in the run-up to the Budget, showing overwhelming support for using an increase in National Insurance Contributions (NICs) for employers to fund additional resources for the NHS.
Seven in 10 voters said they would approve the move if the money raised was used to increase healthcare spending, according to a poll of more than 6,000 people commissioned by Labor Together.
Only 18% said they disapproved. The measure was particularly popular with a crucial group that switched from the Conservatives to Labor at the last election. About 82% of the group said they approved.
The news comes with sources warning that the NHS will need an extra £9 billion to stand still this financial year, compared to the settlement left out by the previous government.
The figure includes around £4 billion in pay rises agreed by Reeves and Health Secretary Wes Streeting following a recommendation from the independent public sector pay body. The rest comes from the 2.9% increase needed to simply allow the NHS to maintain its current performance as demand grows.
Whitehall sources said Reeves put the NHS at the heart of what is set to be one of the most consequential budgets in decades.
“The Conservatives crashed the economy and then ran away, leaving the NHS with spending plans that were a total fiscal fiction,” said a Treasury source.
Reeves has had to unveil the budget while agreeing immediate spending plans for government departments, a process that led to major fallout among several ministers last week.
Some MPs remain fearful of what could happen to unprotected departments, worrying that a Treasury desperate for savings could choose to cut the tax subsidy applied to train fares. That would increase ticket prices and undermine Labour’s argument that it wants to tackle the cost of living.
According to government figures, it is now important to show people that tax increases are needed to reset public finances and rebuild healthcare. “We need to clear the decks,” one source said. “This is about revealing the true state of public finances and how we begin to fix them.”
While it seems increasingly likely that Reeves will sell an increase to employers’ NICs as a key element in the health care recovery, she is already facing accusations of breaching Labor manifesto commitments for backing a series of tax increases used to strengthen public finances.
The Tories argue that an increase in employer NICs by billions of pounds, as well as a proposed two-year freeze on income tax thresholds at £7 billion, would both conflict with Labour’s election manifesto.
However, government sources claim the two measures meet the party’s pledge not to increase VAT, income tax and national insurance for “working people”. A finance ministry source said: “We do not comment on tax speculation.”
after newsletter promotion
The wave of potential tax increases, including inheritance tax cuts and higher capital gains taxes on share sales, comes amid signs that Labor is losing its grip as the party seen as best placed to manage the economy.
The latest poll for the Observer shows that Labor has narrowly lost its lead in improving voters’ financial situations. In July the party was ahead of the Tories by six percentage points, but is now one point behind the party. It is also one point behind the Conservatives when it comes to “running the economy”, after gaining a nine-point lead after the election.
Yet the country still maintains an edge when it comes to improving public services, spending public money efficiently and reducing public debt and the budget deficit.
“Labour’s honeymoon ended a long time ago, but the chances of the Budget turning things around look slim unless there’s a powerful rabbit out of the hat,” said James Crouch, head of policy and public affairs at Opinium. “The government can expect a few turbulent weeks.”
There has been speculation that the NHS will receive real increases of between 3% and 4%, although officials would not rely on this figure.
Siva Anandaciva, principal analyst and interim policy director at the King’s Fund, said it was crucial that increased funding was accompanied by serious reforms. “It is unlikely that any government could now give the NHS ‘enough’ to cope with the severe funding pressures that have built up in recent years,” he said.
“A funding increase of 4% above inflation would be a significant increase compared to the years of cuts the NHS has endured for parts of the last decade.
“Many agree that the NHS needs to reform and modernize its operation. So even if the funding on the table is unlikely to be ‘sufficient’, the government will have to demonstrate that the additional investments it makes – at no small political cost if this funding comes partly from higher taxes – are used to boost the economy to support. reforms to the way the NHS works, rather than just paying for more of the same.”