Rachel Reeves is preparing to slap a 20% VAT charge on taxi and private hire journeys in a move already branded the “taxi tax” by furious campaigners and industry insiders. The Chancellor is expected to unveil the measure in her autumn Budget on November 26 as she scrambles to plug what officials describe as a £50bn black hole in the public finances. Treasury sources say the plan could raise as much as £750m a year.
However, critics have warned the policy will fall hardest on those living outside London, where cabs are often the only reliable form of transport. Michael Solomon Williams of the Campaign for Better Transport, said: “Make no mistake, this will hammer rural communities. Taxis and private hire vehicles are a lifeline for people who can’t drive or who need accessible door-to-door travel.”
Speaking to the Daily Telegraph, Mr Solomon continued: “The Government should be making public transport cheaper and more accessible – not taxing the very services that fill in the gaps.”
At present, most taxi drivers outside the capital do not charge VAT because they are self-employed and fall below the £90,000 annual earnings threshold. Ms Reeves’s new scheme would apply a blanket rate across the sector regardless of driver status.
Industry figures fear the move will drive up fares by a fifth overnight, pricing out those on lower incomes and undermining already fragile rural connectivity.
One taxi operator based in Cumbria warned: “It’s effectively a 20 per cent hike on people just trying to get to work, see a doctor, or make a hospital appointment. We’re not Uber. We don’t have corporate backers. This will destroy small cab firms.”
The Treasury has been weighing the measure since Uber mounted a legal challenge to the current exemption. Though the courts ultimately upheld the status quo, Reeves and her team have kept the idea alive as a revenue-raiser.
A grassroots Stop the Taxi Tax campaign has sprung up, arguing the measure breaks Labour’s election promises.
A spokesman for the campaign, said: “The Taxi Tax breaches Labour’s manifesto pledge not to raise VAT. It will hit rural communities especially hard – places where there is no bus, no train, no alternative.
“We urge the Chancellor to stick to her promise and avoid another blow to those already isolated.”
Polling commissioned by the campaign shows strong public resistance.
The campaign spokesman added: “Seven in ten voters oppose the plan. Almost six in ten villagers say they would cut their taxi use if fares rose. Half of respondents in rural areas said a 20 per cent hike would make journeys outright unaffordable.”
Ms Reeves, however, appears determined to press ahead. With borrowing tipped to overshoot official forecasts by £11.4bn between April and August, Treasury insiders have acknowledged she has little choice but to seek fresh revenue streams.
A HM Treasury spokesperson said: “We take this issue very seriously and recognise its complexity. We are reviewing feedback from our recent consultation and will publish our detailed response shortly.”
