Rachel Reeves is set to use one of the biggest budgets in recent times to ask businesses to pay more taxes to help restore the NHS, amid warnings the health service has been left with a £ hole. 9 billion in their finances.
The chancellor is expected to risk her reputation with a tax-increasing budget designed as a reboot of the public finances. He has already had to deal with cabinet skirmishes over funding revealed alongside the statement. However, Reeves is understood to believe the public will accept a multi-billion pound increase in business taxes if it is linked to repairing the health system's finances.
He Observer has seen new research, commissioned in the run-up to the Budget by an influential think tank with close links to the Treasury and No 10, suggest overwhelming support for using an increase in national insurance contributions (NICs) to for employers to fund additional resources for the National Health Service.
Seven in 10 voters said they would approve the measure if the money raised was used to increase spending on the health service, according to a poll of more than 6,000 people commissioned by Labor Collectively.
Only 18% said they would disapprove. The move was particularly popular among a key group that switched from the Conservatives to Labor in the last election. About 82% of the group said they approved.
The news comes with sources warning that the NHS needs an extra £9bn this financial year to stay put, compared to the deal left to it by the previous government.
The figure includes around £4bn in pay rises agreed by Reeves and health secretary Wes Streeting after a recommendation from the independent public sector remuneration body. The remainder comes from the 2.9% increase needed simply for the NHS to maintain its current performance because demand is growing.
Whitehall sources said Reeves was putting the NHS front and center in what is shaping up to be one of the biggest budgets in decades.
“The Conservatives crashed the economy and then fled, leaving the NHS with spending plans that were a complete fiscal fiction,” said a Treasury source.
Reeves had to reveal the budget as well as agree immediate spending plans for government departments, a process that caused huge fallout among several cabinet ministers last week.
Some MPs remain fearful of what might happen to unprotected departments, fearing that a Treasury desperate for savings could opt to reduce the taxpayer subsidy applied to rail fares. That would drive up ticket prices and undermine Labour's argument that it wants to tackle the cost of living crisis.
Government figures said it was now important to show people that tax increases were needed to restore public finances and rebuild the health service. “We have to clear the air,” a source said. “It is about revealing the current state of public finances and how we begin to fix them.”
While it looks increasingly likely that Reeves will sell a rise to employers' NICs as an important element of restoring the health service, he is already facing accusations of failing to live up to Labor manifesto commitments by using a series of tax rises to bolster public finances.
The Conservatives claim that a multi-billion pound increase in employers' NICs, as well as a proposal to freeze income tax thresholds worth £7 billion for two years, would breach Labour's election manifesto.
However, government sources maintain that the two measures fulfill the party's commitment not to increase VAT, income tax or national insurance for “workers”. A Treasury source said: “We do not comment on tax speculation.”
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The spate of potential tax rises, including cuts to inheritance tax relief and a higher capital gains tax on share sales, comes amid signs Labor is losing control as the party considered best positioned to manage the economy.
The latest Opinium survey for the Observer shows that the Labor Party has narrowly lost its lead in improving the financial situation of voters. In July he led the Conservatives by 6 percentage points on this issue, but now he is one point behind the party. He is also one point behind the Conservatives on “direction of the economy”, having led by nine points after the election.
However, it still maintains leadership in improving public services, efficiently spending government money, and reducing national debt and deficits.
“Labor's honeymoon is long over, but the chances of the budget turning things around look slim unless there is a powerful rabbit to pull out of the hat,” said James Crouch, head of policy and public affairs at Opinium. “The government should expect a turbulent couple of weeks.”
There has been speculation that the NHS will receive real terms increases of between 3% and 4%, although officials are not interested in the figure.
Siva Anandaciva, chief analyst and acting director of policy at the King's Fund, said it was essential that increased funding was accompanied by serious reform. “It is unlikely that any government will be able to give the NHS 'enough' right now to cope with all the serious funding pressures that have built up over the past few years,” he said.
“A funding increase of 4% above inflation would be a significant increase compared to the years of austerity the NHS endured for parts of the last decade.
“Many agree that the NHS needs to reform and modernize how it works. Therefore, even if the funding on the table is unlikely to be “sufficient”, the government will have to demonstrate that the additional investment it is providing (at no small political cost if this funding comes in part from higher taxes) “It is being used to support reforms in the way the NHS works, rather than simply paying for more of the same.”