“Kite flying” briefings about potential tax rises in the Budget are hitting consumer confidence and risk tanking economic growth, Labour MPs have warned Rachel Reeves.
MPs in the 2024 cohort fear a repeat of last year when gloomy commentary from ministers on the state of the public finances was blamed for stalling the economy.
There is particular concern that various mooted taxes in the housing sector could “gum up” the property market by slowing down sales as buyers and sellers wait to see if they are likely to lose or gain from any changes.
It follows a series of leaks about possible tax rises which could feature in the Budget, with the introduction of national insurance on landlords’ rental income the latest suggestion.
The Chancellor is expected to raise taxes this autumn to cover a budget shortfall driven by downgrades to productivity forecasts and U-turns on policies such as welfare reform and cuts to winter fuel payments.
Predictions about the size of the black hole differ, with some analysts forecasting a gap of £20bn but others saying it could be larger than £40bn.
The shortfall is against Reeves’ self-imposed fiscal rule of not borrowing to dund day-to-day expenditure – meeting it instead from tax income.
In recent weeks there has been a series of apparent leaks about possible taxes changes which the Chancellor could resort to, including an overhaul of stamp duty and council tax, charging capital gains tax on high-value primary residences and applying national insurance to rental income.
Labour MPs believe that the Treasury is “kite flying” the ideas to test support for them. However, there is increasing concern that the tax speculation is weighing upon investment and activity in the economy.
A Labour MP said: “The key thing in the next few months is that we don’t end up in a cycle of talking about tax rises [and] confidence in the economy weakens. We need to be positive and optimistic and on the front foot.”
The MP said that while the Government would have to make “big and maybe difficult decisions” in the Budget, it did not have to spend “months briefing about them”.
Another MP said the timing of recent trails was “weird” and “premature” because of the “distortive effect” on the property market.
“Yes we have to trail Budget announcements around tax,” they said.
“But I’m worried about some of the lead times. If you are doing any tax stuff, there is an issue that if you announce some of these changes it can gum up the housing market.
“You’ve got to be so careful.”
Comparisons have been drawn with last August when Sir Keir Starmer delivered a speech in the Downing Street garden in which he warned that the Budget in October was “going to be painful”.
In the final half of 2024 the economy barely grew, and Starmer later said the speech had been a mistake because it “squeezed the hope out”.
On the latest leaks, a Labour source said: “Obviously kite flying of tax policies is all part of the lead up to a Budget. But there is also a lesson in this. Last year we went far too early on the pitch-laying for the Budget.
“Keir did that speech in the rose garden, saying the sky was falling on our heads. That tanked confidence. It was like two months out from the Budget itself. We’re about the same point now. It does feel quite early to be chucking so many briefings out there.”
The source added: “People will wait to do any transaction in the [property] market until they’ve got some idea what it’s going to be.”
A Labour backbencher said the tax speculation was “exasperating”. They said that while it happened “every year to all governments”, it added a “degree of uncertainty” that businesses could “do without”.
On Thursday, the education minister Stephen Morgan said it was “not for me to comment on speculation” when he was asked whether landlords would be taxed.
Asked whether Treasury colleagues had been leaking to the press, he said: “I can’t comment on that.”
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Read MoreHowever, a Treasury source told The i Paper that it was “ridiculous to suggest HMT is ‘kite flying’ this far out from the Budget”.
The Treasury insists it does not comment on speculation about future changes to tax policy.
In a recent editorial for The Guardian, Reeves said: “The months and weeks before any budget are filled with people speculating about – or claiming to know – what tax and spend decisions I will take or what the Office for Budget Responsibility will conclude. “This budget is no different – I get that. I will set out the decisions I take in a responsible manner.”
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