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Shadow chancellor Jeremy Hunt has drawn up the political battle lines ahead of next week’s Budget by warning that Rachel Reeves is set to “trash” Britain’s economy through a set of tax hikes on business.
Hunt told the Financial Times that a decision by the Labour chancellor to increase national insurance contributions for employers would be “an absolute disaster”, hitting profits, investment and job creation.
He said Treasury officials — some of whom still advise Reeves — suggested hiking employer NICs in 2022 in the turmoil that followed Liz Truss’s brief premiership. “I rejected it because of the damage it would do business investment and job creation,” he said.
Hunt added: “In some ways I share Rachel Reeves’ prescription that the answer is more productivity and more investment, but you don’t there by introducing French labour laws and German levels of taxation.”
Hunt’s own record as chancellor has been pilloried by Reeves since Labour won the election on July 4. She claimed Hunt “knowingly and deliberately . . . lied” before polling day about the state of the public finances.
Reeves will pitch her Budget as an attempt to “fix the foundations”, claiming Hunt left her £22bn of unfunded spending commitments, crumbling public services and falling investment as a share of GDP.
But after almost four months out of office, the Conservatives are honing their counter-attack on Labour, as Reeves prepares to make the defining economic statement of this parliament.
“I’m really worried that Labour is going to trash an economy which has better growth prospects than it has for many years,” Hunt said, arguing Britain was bouncing back after Covid and Ukraine energy shocks.
Reeves has insisted that raising employer NICs would not breach Labour’s manifesto tax pledges; a 2p rise could raise £18bn, while imposing NICs on employer pension contributions might raise £9bn, economists have forecast.
“From a government point of view this is a politically painless tax rise but from an economic point of view it’s an absolute disaster,” Hunt said, insisting he could have met his own fiscal rules without such rises.
The shadow chancellor, who narrowly held his Surrey seat on July 4, says Reeves should think “very carefully” before raising NICs or hitting other sectors such as non-doms and private equity investors.
Reeves has argued that those with the “broadest shoulders” have to pay more to fix the public finances bequeathed by Hunt, which she claims were in a far worse state than she expected.
“It’s one of the oldest tricks in the book to try to blame your predecessor for difficult decisions you have to take,” Hunt said. “It’s an even older one to cover up what you’re planning to do before an election to get elected.”
Hunt insists — although many economists disagree — that his tight spending plans for public services in this parliament were realistic, but that Reeves had ducked tough reforms to improve efficiency.
He agrees with the new chancellor’s argument that Britain needs more investment, but said that she risks “spooking the markets” because she said before the election that “she wouldn’t fiddle the fiscal rules”.
Hunt is, however, supportive of other measures that Reeves is promoting alongside the Budget, including pursuing the pensions reforms he started with his Mansion House speech last year.
“Rachel Reeves has made it clear when will build on our Mansion House reforms and that’s an excellent thing,” he said. Reeves wants to see a big consolidation in fragmented schemes.
He said the Tories would also support planning reforms that lead to faster approval of new nuclear power stations, roads and railways. “That would be positive and something we could support,” he said.
Hunt also endorsed Reeves’ decision to put pressure on regulators to prioritise growth, a push that he began while at the Treasury. “Let’s put it this way — culture change was a work in progress,” he said.
The shadow chancellor will step down from his role when a new Tory leader is named on November 2, just days after the Budget. He is staying “neutral” in the leadership contest and said for the time being he does not want another front bench role.
He is writing a couple of books on Britain’s role in the world and the economy and is looking forward to a “less stressful” life. But he does not quite rule out a fourth tilt at the Tory leadership in future. “I don’t think so,” he said. “I think that ship has sailed. I tried three times.”
