One Labour MP described PM Sir Keir Starmer’s decision to abandon his welfare crackdown as “a total clusterf*** of Godzilla proportions”.
If anything, the MP was understating the mess Starmer has made of attempts to shave £5billion off the UK’s ballooning disability benefits bill.
His welfare crackdown U-turn may have secured a Commons vote, but almost all of the £4.6billion in planned welfare savings have now gone up in smoke.
Starmer’s closest ally, Pat McFadden, admitted this morning the decision will have “financial consequences”. Translation: tax hikes. And they’ll be bigger than expected.
Chancellor Rachel Reeves can’t cut spending now. Mutinous Labour MPs won’t wear it.
She says she won’t break her “non-negotiable” fiscal rules either. But with a Budget black hole now stretching to tens of billions, tax rises are her only option.
She keeps insisting there won’t be a repeat of last year’s record tax grab. But it’s coming anyway.
The hole in Reeves’s autumn Budget could reach £20billion, JP Morgan reckons. Up to £5billiion of it is thanks to Starmer’s benefits climbdown and a scrapped cut to winter fuel payments. The rest is down to our growth-destroying Chancellor, higher borrowing costs and Donald Trump’s looming tariffs.
To make matters worse, the Office for Budget Responsibility has now confessed it was too optimistic on economic growth, and has slashed its forecasts. So has the Bank of England, the IMF and just about every other forecaster.
Back in March, Reeves gave herself a wafer-thin £9.9billion of headroom. That’s long gone.
She’s ruled out borrowing more, and pledged no major hikes to income tax, National Insurance or VAT. So now she’s boxed herself in. The only place left to look is wealth.
Raids on pensions, ISAs and any form of wealth now look inevitable.
Expect another two-year freeze on income tax thresholds, dragging millions more into higher bands. Ministers will insist they’re not raising income tax. But in practice, they are.
It could get worse. Things are about to get “biblical”.
Labour rebels smell blood after their welfare win.
Andy McDonald is pushing for a 2% annual levy on assets over £10million, along with a steep hike in capital gains tax. He told The Telegraph: “It is the broadest shoulders argument. ‘Distributed to each according to his need.’ That’s not Marx, it’s the Bible.”
Except it isn’t. That line comes straight from Karl Marx who wrote in 1875: “From each according to his ability, to each according to his needs.”
Marxism is back. In Labour, it never went away.
So get ready. Another tax raid is coming and possibly even worse than last year’s. Labour’s class warriors are off the leash, demanding wealth taxes, capital taxes, property taxes, anything that moves.
But taxing the rich isn’t as simple as it sounds. The wealthy are mobile. They leave. Then the shortfall lands squarely on the shoulders of working people.
Middle earners will pay the price, as they already are. Frozen thresholds and stealth hikes hit them hardest. As high earners head for the exits, ordinary taxpayers will be left to foot the bill.
The Rachel Reeves clusterf*** is only just getting started.