Budget 2024: Rachel Reeves splashes money on NHS and colleges in £40billion tax raid

Rachel Reeves turned on the spending taps with a £70billion-a-year cash injection for schools, hospitals, transport and housing.

In a blockbuster Budget, the first ever female Chancellor set out plans to shore up crumbling public services and stabilise the economy after years of Tory neglect. The plans will be funded through a borrowing splurge and a whopping £40billion-a-year in tax rises, taking the overall tax burden to a post-war high of 38% of GDP by 2027/28.

Ms Reeves accused the Conservatives of fudging their figures ahead of the March Budget, leaving her with a £22billion black hole in the public finances. She told MPs: “It was the height of irresponsibility, and they knew it because they had run out of road. They called an election to avoid making difficult choices.”

But the Chancellor said she had chosen to “invest, invest, invest” to drive up growth, as well as pumping billions of pounds into public services. She said: “This is a moment of fundamental choice for Britain. I have made my choices; the responsible choices to restore stability to our country; to protect working people.

“More teachers in our schools, more appointments in our NHS, more homes being built, fixing the foundations of our economy, investing in our future, delivering change, rebuilding Britain.”

The NHS in England will get a £22.6billion boost to day-to-day spending and £3.1billion to spend on capital projects like buildings – the largest increase since 2010, outside of the Covid pandemic. The cash will be used to fund 40,000 elective appointments per week, driving down waiting lists, which ballooned to more than 7.6million in England.

Ms Reeves, whose parents were teachers, recalled learning in prefab huts as she promised £6.7billion to rebuild and repair schools. It included £15million for new or expanded nurseries attached to primary schools.

The core schools budget will rise by £2.3billion next year to help recruit 6,500 new teachers in England. Some £1billion will go towards supporting children in the crisis-hit special educational needs and disabilities (Send) system.

Ms Reeves said she joined the Labour Party due to the state of schools under the Tories in the 1980s and 1990s. She said: “My school, like so many others, was rebuilt by the last Labour government.

“But today, after 14 years of Tory government, progress has gone backwards, schools’ roofs are crumbling, and millions of children are facing the very same backdrop as I did. I will be the Chancellor that changes that.”

There will be £500million next year to fix Britain’s pothole-ridden roads and a new £3 cap on bus fares, to replace the £2 cap imposed by the Tories due to expire at the end of the year. Extra cash has been unlocked for HS2 to run from Birmingham to London Euston, undoing Rishi Sunak’s decision to end the line at Old Oak Common in west London.

The Chancellor unveiled plans to pour more than £5billion into house building next year, including £3.1 billion for the Affordable Homes Programme. Councils will be able to retain all the cash from sale of social homes to put back into the stock of council houses – and the right to buy discount will also be slashed.

Ms Reeves also confirmed stamp duty will go up from 3% to 5% on second home purchases in England and Northern Ireland. Those impacted by the infected blood scandal will be able to claim from a £11.8billion compensation pot, with £1.8billion to compensate victims of the Post Office Horizon scandal.

Working people will escape hikes on their payslips but employers’ national insurance contributions (NICs) will rise to 15% in April, with payments starting when an employee earns £5,000, down from the current £9,100. The move will raise more than £25billion by the end of this Parliament.

Wealthier Brits will pay more in capital gains tax and inheritance tax, while tax perks for private schools will be scrapped from next year. The controversial non-dom loophole will be closed for the super rich, which allows them to avoid paying tax on overseas income.

Paul Johnson, director of the Institute for Fiscal Studies think tank, said the Budget would deliver a “short-term sugar rush” for the economy as a result of the “debt-financed spending splurge”. But “somebody will pay for the higher taxes – largely working people,” he said.

The economy is set to grow faster than expected this year and next but then suffer a slowdown, the Office for Budget Responsibility predicted. The watchdog said policies in the Budget would deliver a “temporary boost”, with growth revised up to 1.1% in 2024 and 2% next year. But it then tails off to just 1.5% in 2027, leaving the size of the economy “largely unchanged in five years”.

Richard Hughes, chair of the OBR, said the government’s promised investment in infrastructure spending could take eight to 10 years to feed through to growth figures. “It takes time for that public investment to have an impact,” he said.

Higher prices will also result in inflation averaging 2.5% this year and 2.6% next, the OBR said, and take until 2029 to get back to the key 2% target. The OBR also warned that the hike in employers’ national insurance risked feeding through to higher prices as companies pass the cost on, and lower wage growth.

It also forecast it could lead to 50,000 fewer hours being worked by 2029.30, split between job losses and reduced hours for those in work.

Professor David Miles, a member of the OBR’s Budget Responsibility Committee, said: “It is very likely that the majority of people will face more taxes. The lion’s share will come through in lower wages.”

He also warned that higher public sector borrowing could result in interest rates for households and businesses being slightly higher than would otherwise be the case.