Now we’ll all pay for Rachel Reeves’ non-public college tax: Labour’s VAT raid on non-public colleges helps ship inflation hovering to a ten-month excessive

Labour’s tax raid on private schools has helped send inflation soaring to a ten-month high.

And experts, who warned there would be ‘unforeseen consequences’, say households will shoulder the burden of the higher borrowing costs.

Chancellor Rachel Reeves was accused of being ‘out of her depth’ as official figures yesterday showed inflation hit 3 per cent in January – a much bigger increase from December than predicted.

The rise has fuelled fears the UK will face an extended period of ‘stagflation’ – when the economy stagnates as inflation intensifies. The last serious case of stagflation in the UK was in the 1970s.

In a blow to homeowners and first-time buyers, mortgage rates could stay higher for longer because the increase has dented hopes that borrowing costs will be cut this year.

Campaigners have said ministers were ‘warned’ removing the long-standing VAT exemption on private school fees would have ‘unforeseen consequences’.

The 3 per cent inflation was up from 2.5 per cent in December and higher than the 2.8 per cent that had been predicted by economists. January’s reading was nearly double September’s 1.7 per cent rate and the highest it has been in ten months, laying bare the impact of the Chancellor’s tax-hiking Budget in October.

Chancellor Rachel Reeves was accused of being ‘out of her depth’ as official figures yesterday showed inflation hit 3 per cent in January – a much bigger increase from December than predicted

Labour’s tax raid on private schools has helped send inflation soaring to a ten-month high (file image)

Tory shadow chancellor Mel Stride said: ‘This Chancellor is out of her depth and we’re all paying the price.’

Private school tuition was up nearly 13 per cent in January after the VAT was imposed at the start of this year, as shown by the Office for National Statistics (ONS). More expensive energy bills, food costs – particularly bread, meat and cereal – and plane fares have also pushed up the rate of inflation, ONS chief economist Grant Fitzner said.

Businesses have also started to increase prices for customers in anticipation of higher National Insurance and minimum wage bills from April.

City analysts say it is increasingly unlikely that Bank of England policymakers will vote to cut interest rates in March as inflation is firmly above their 2 per cent target. The next reduction is now expected to come in May – but analysts have warned it is ‘not a foregone conclusion’.

That means borrowers will be stuck paying higher interest rates on their loans and mortgages.

Mortgages under 4 per cent will be ‘first to go’ just weeks after major lenders brought them back, said Rightmove mortgage expert, Matt Smith. He said the unexpectedly high inflation figure would have a ‘knock-on effect to some of the early momentum we were starting to see in mortgage rates coming down’.

Tory shadow chancellor Mel Stride said: ‘This Chancellor is out of her depth and we’re all paying the price’

He said: ‘Today’s inflation figures mean further pain for family finances – and it’s thanks to the Labour Chancellor’s record tax hikes and inflation-busting pay rises. Labour were warned that their tax spending and borrowing spree would drive up inflation.

‘It means higher prices in the shops, and interest rates staying higher for longer, causing mortgage misery for millions. This Chancellor is out of her depth, and we’re all paying the price.’

Shadow education minister Neil O’Brien said the inflation reading was ‘yet more evidence of the way Labour’s education tax is backfiring, with inflation at the highest level in almost a year thanks to their ill-thought through policy.’ He added: ‘Now we see that it is pushing up inflation, which will cost everyone more.’

Julie Robinson, of the Independent Schools Council, said the Government was ‘warned that rushing in this policy would have unforeseen consequences that went beyond independent schools and the parents who choose them’. Julian Jessop, an economics fellow at think tank the Institute of Economic Affairs, said the Bank of England is likely to leave interest rates on hold until May.

The jump was ‘evidence that the UK is heading for “stagflation” – a nasty combination of stagnating economic activity, rising inflation and increasing job insecurity’, Mr Jessop said. ‘The renewed increase in food price inflation will be particularly worrying for households on lower incomes’.

Roger Barker, director of policy at the Institute of Directors, said the ‘latest figures cast doubt on the pace of future interest rate cuts’.

‘The worst-case scenario for UK business is stagflation, combining high inflation and low growth,’ Mr Barker said. ‘January’s inflation figures have done little to mitigate the risk of this outcome.’

Shadow education minister Neil O’Brien said the inflation reading was ‘yet more evidence of the way Labour’s education tax is backfiring, with inflation at the highest level in almost a year thanks to their ill-thought through policy’

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said the figures confirmed a ‘disheartening rebound in inflation’.

‘In the coming months, the only way will be up for inflation, with higher energy costs from April, the looming national insurance rise and global trade frictions likely to lift the headline rate close to 4pc by the summer’.

Mr Thiru added: ‘This increase means that a March rate cut currently looks improbable. With inflation headwinds mounting, including April’s major rise in business costs, a May loosening – while still likely – is not yet a foregone conclusion.’

In response to the ONS’s damning figures, Ms Reeves said: ‘Getting more money in people’s pockets is my number one mission.’

‘That’s why we’re going further and faster to deliver economic growth.’