URGENT UPDATE: Two prominent Scottish business leaders have expressed support for a temporary rise in income tax, as the Labour Government prepares to unveil its Budget. Labour peer Willie Haughey and entrepreneur Sir Tom Hunter indicated they could accept tax hikes if they are framed as short-term solutions aimed at improving the country’s financial situation.
The announcement comes as Labour’s Rachel Reeves is poised to become the first Chancellor since the 1970s to raise the basic rate of income tax in her upcoming Budget, scheduled for later this month. As the economic climate worsens, a potential reversal of previous tax commitments has sparked concern among party officials who fear voter backlash for breaking promises.
On their podcast, Haughey and Hunter, both seasoned entrepreneurs, shared their perspectives. Hunter stated, “If Keir Starmer and the Chancellor were to say, look, we need this as a temporary measure to reduce our debt… then a temporary increase in income tax I think people would understand.” This sentiment underscores a growing acceptance among some business leaders for necessary fiscal changes to stabilize the economy.
Haughey, a notable Labour donor, added that introducing the term “temporary” could garner public support. He likened a short-term tax rise to the previous Conservative Government’s national insurance adjustments, emphasizing the need for clear communication from the government regarding the rationale behind any tax increases. “She’d have to demonstrate that this hurt that everybody is taking is great in the longer term,” he said.
While an income tax rise at Westminster would not automatically affect Scotland due to devolved powers, experts warn that such a move could result in a budget cut of up to £1 billion for the Scottish Parliament. This leaves First Minister John Swinney with limited options, including either matching the tax increase or implementing spending cuts.
These views align with recommendations from the Tony Blair Institute, which has urged that any significant revenue-raising measures, especially those that breach manifesto commitments, be presented as temporary. The institute advocates for targeted tax cuts prior to the next election to encourage growth and bolster public services.
In a recent interview, Reeves acknowledged the difficulty of adhering to manifesto commitments without substantial cuts to capital spending, stating, “…the reason why our productivity and our growth has been so poor these last few years is because governments have always taken the easy option to cut investment.”
As the political landscape continues to shift, the implications of upcoming tax discussions are set to resonate across Scotland and the UK. The Labour Government faces a crucial test of public perception and economic strategy in the wake of these developments.
Stay tuned for further updates as this story unfolds and the Budget is revealed. The decisions made in the coming weeks could have lasting impacts on the UK economy and Scottish finances.
