A Labour minister has repeatedly failed to say whether Britons running small firms are ‘working people’ as she sowed further confusion over the party’s tax pledges.
Bridget Phillipson, the Education Secretary, was grilled this morning about who will suffer from Chancellor Rachel Reeves’ expected £35billion tax raid in Wednesday’s Budget.
Ahead of the general election, Labour vowed not to raise VAT, income tax, or national insurance as part of a pledge not to hike levies for ‘working people’.
But Ms Reeves’ revenue-raising measures are reportedly set to include an increase in national insurance paid by employers.
This has led to furious claims of a breach of the party’s manifesto promises and prompted fears that significant extra costs for businesses will stifle wage rises for workers.
In a BBC interview, Ms Phillipson insisted that working people will not see higher taxes ‘on their payslip’ as a result of Labour’s first Budget in 14 years.
But she refused to say whether Labour’s definition of ‘working people’ included those who run businesses.
The Tories claimed Labour ‘essentially lie to the British people’ over their tax plans.
Shadow science secretary Andrew Griffith compared Sir Keir Starmer’s party to the ‘worst form of dodgy car hire firm’.
He accused Labour of ‘conjuring up small print that never existed’ over their promise not to hike national insurance.
Asked who Labour defined as a ‘working person’, Ms Phillipson told the Sunday With Laura Kuenssberg programme: ‘You are inviting me to speculate about the nature of the question that you’re asking.
‘What I’m saying is that when people look at their pay slips, they will not see higher taxes.’
The Education Secretary failed to state whether a small business owner with an average net profit of around £13,000 would be considered a ‘working person’ by the Government.
‘Well, we can go through a range of different hypotheticals about who may or may not be captured by tax measures that may or may not happen in the Budget,’ the Cabinet minister said.
‘When Rachel is sat here next weekend you can ask her about the measures that she’s announced.
‘I know it’s frustrating ahead of the Budget that I can talk about some areas, but not all of it.
Ms Phillipson had earlier sparked alarm when she declined to say whether Labour’s pledge not to raise income tax, VAT or national insurance would remain in place for the next five years.
Asked if the promise applied for the whole of this parliament, Ms Phillipson told Sky News: ‘We think taxes on working people are already too high, because that’s what they faced under the Conservatives.
‘I can’t speculate on either this Budget or on successive budgets to come.’
But Downing Street sources swiftly scrambled to clarify, as a manifesto commitment, the tax pledge would apply for the whole parliament.
Former Bank of England governor Mervyn King described Labour’s pledge on national insurance, VAT and income tax as ‘very unwise’.
He also said the debate around not putting up taxes on working people was a ‘terrible illusion’ and warned putting up employers’ national insurance was likely to depress workers’ salaries.
Lord King told Sky News: ‘All this debate about not putting up taxes on working people is a terrible illusion, really.
‘Taxes are paid by people, they’re not paid by companies or institutions, ultimately, they fall on the amount that people can spend.
‘And you only can raise significant amounts of money by raising taxes on most people, however you care to define that, but it’s most people will have to pay higher taxes.
‘And if they, instead of unwinding the cuts in employees’ national insurance contributions, put up employers’ national insurance contributions, that will make it less likely that companies will exceed to wage demands, they will press down on that, they will probably be less enthusiastic about creating new jobs.
‘Ultimately, the impact of these higher taxes has to be on the consumption of most people, however you care to define that group.’
Lord King also warned that Ms Reeves’ expected Budget plans could have an impact on interest rates.
The Chancellor is set to rewrite the Government’s fiscal rules to allow her to increase borrowing for public investment by around £50billion.
Asked if he thinks the expected plans may have an impact on interest rates, particularly mortgage rates now, Lord King said: ‘It could do, it could do.
‘Certainly if you borrow more, it doesn’t matter how you dress it up in terms of a different fiscal rule, people know that higher borrowing means higher borrowing.
‘And financial markets and people who lend to the Government will demand a slightly higher interest rate to compensate for the higher amount of debt that they’re being asked to finance.
‘It doesn’t have to be dramatic, but it certainly will put some upward pressure on long-term interest rates. I don’t think it necessarily affects what the Bank of England does today or even next year, but it certainly will have some upward pressure.’
Sir Keir Starmer is estimated to have a fortune worth millions of pounds. Here ANNA MIKHAILOVA takes a look at the PM’s money…
Salaries: Two – one as an MP, with current pay at £91,346 plus expenses, and another as PM, for a total of £166,786. Sir Keir’s NHS worker wife is said to earn up to £50,000 a year. As Director of Public Prosecutions from 2008 to 2013, his wages totalled £1 million.
Pension: A £700,000 pension, which, on top of his MP’s retirement allowance, is expected to give him a public-sector pension pot of about
£1 million. Technically, he is able to save money from his MP’s salary into his pot without incurring a tax bill. When he leaves No 10, he can also claim a former PM’s allowance of £115,000 a year for life.
Property: The north London house Sir Keir bought in 2004 for £650,000 has no mortgage and is worth about £2 million. He paid £85,000 in capital gains in 2022 from the sale of a home bought with his sister – suggesting a £300,000 profit.
Donkey sanctuary sale: £275,739 from selling land he bought for his parents to use to care for neglected donkeys.
Legal work: As an MP, before being party leader, he earned thousands for legal work – including at least £100,000 in consultancy fees from law firm Mishcon de Reya.
Paul Johnson, the director of the Institute for Fiscal Studies, warned some public services could continue to feel squeezed despite ‘one of the biggest tax-raising budgets ever’.
When asked about what the Government’s pledge to protect the NHS budget could mean for non-protected departments, Mr Johnson told Sky News: ‘If we get tax rises of the scale that it looks like we might, then that will at least allow some increases for other departments, but they still won’t look like very generous ones.
‘Now part of the problem of course is the NHS is so big that if, for example, they were to be as generous as 4 per cent or 5 per cent a year increases – and mind you that’s nowhere near as big as what the last Labour government was able to give the NHS – that still leaves other departments quite tight: increases in their budgets but probably not even increases in line with national income.
‘And of course justice, local government, social care, police, prisons, they’re all really struggling at the moment.
‘So again we’re in this really tough position where we could have the biggest tax-raising budget, or one of the biggest tax-raising budgets, ever and yet a lot of public services still feeling squeezed.’
The Prime Minister was last night accused of telling a ‘double lie’ by insisting the Budget would not be a ‘war on Middle Britain’ nor break Labour manifesto promises.
Sir Keir Starmer denied that he misled voters when he pledged during the general election campaign not to hit ‘working people’ with increases to VAT, national insurance or income tax.
At a Commonwealth summit in the South Pacific, Sir Keir was asked whether he had Middle Britain in his sights with the £40 billion package of tax rises and spending cuts, and insisted: ‘No. Let me be clear about that.’
But Tory leadership candidate Robert Jenrick said last night: ‘Sir Keir has lied not once but twice by claiming not to have breached his manifesto promises on tax and by insisting that his Budget will not be an assault on the heartlands of Middle Britain.’
Mr Jenrick added: ‘Nobody voted for Rachel Reeves’s raid on working people. This is a political choice and we must fight it.
‘It turns out Labour’s election manifesto was another dodgy dossier – they lied to the British people through their teeth.’
Wednesday’s Budget is also likely to include increases to capital gains and inheritance taxes and extend freezes to income tax thresholds, dragging more people into higher rates as wages rise with inflation.
Amid growing consternation among Labour MPs over the potential long-term electoral impact of the measures:
Speaking before boarding a 27-hour flight back to Britain, Sir Keir told a press conference at the Commonwealth Heads of Government summit in Samoa: ‘We were very clear about the tax rises that we would necessarily have to make.’
He insisted that the increase in employers’ national insurance contributions would not be a manifesto breach because the pledge was restricted to ‘working people’.
He has classified that as meaning someone who ‘goes out and earns their living, usually paid in a sort of monthly cheque’.
However, higher costs for employers are expected to have a knock-on effect on employees as they deter recruitment and stunt wage rises.
In a faintly farcical clarification, Downing Street later stated that those who hold a small amount of savings in stocks and shares still count as ‘working people’.
The Prime Minister’s official spokesman said that Sir Keir meant someone who primarily gets their income from assets would not be considered a ‘working person’.
Ms Reeves said during the election campaign: ‘We certainly won’t be increasing income tax or National Insurance if we win.’
At his press conference, Sir Keir repeated his assertion that he was planning to ‘fix the foundations’ of the economy after the Tories had left behind an alleged £22 billion ‘black hole’ in public finances.
He said: ‘We were clear in the manifesto and in the campaign that we wouldn’t be increasing taxes on working people, and spelt out what we meant by that in terms of income tax, in terms of National Insurance contributions and in terms of VAT, and we intend to keep the promises that we made in our manifesto.’
Experts have also warned that planned changes to the fiscal rules to allow Ms Reeves to borrow up to £50 billion extra for investment projects are likely to lead to higher mortgage rates.
But while in Opposition, the Chancellor said she would not ‘fiddle the figures’ to secure extra resources.
Shadow Chancellor Jeremy Hunt last night branded it a ‘scandal’ that Labour did not come clean about tax hikes before voters went to the polls.
He said: ‘It’s clear that this Budget will be a hammer blow for working people.
‘Keir Starmer promised at the election he wouldn’t raise taxes on working people, but it’s clear that he doesn’t have a clue as to what the definition of a ‘working person’ even is.
‘The real scandal is that Keir Starmer and Rachel Reeves always planned to raise taxes, they just didn’t have the courage to tell the British public at the election.’