MAGGIE PAGANO: Labour’s navy funding insanity

If you believe it is a public good that British businesses and households are paying more tax than ever, you will be delighted by the Office for National Statistics figures showing a whopping tax take in January. Most of the increase was due to bumper capital gains taxes, which raised £17billion last month, some £7billion more than a year earlier.

This was hardly a clever business strategy, though, as most of the gain came from those selling assets ahead of expected tax rises in the Budget.

National Insurance contributions rose by £2.9billion, while self-assessed tax receipts reached a total of £29.4billion, some £4billion higher than last January.

More money also came from personal taxation due to the freeze in income tax thresholds four years ago.

These tax hikes mean the UK saw the biggest ever public-sector budget surplus at £30.4billion, double that of January a year ago. Before the high-tax advocates get too happy-clappy, January is always a big tax month because of self-assessment while the figures are not adjusted for inflation.

If you take the alternative view that taxing businesses and individuals to the gills strangles investment and growth, then the figures are disappointing, as so much productive money has been taken out of the economy.

Expecting trouble?: Rachel Reeves and Keir Starmer must be brutally honest about defence spending with their backbenchers as well as with the public

They reveal the dark side of Labour’s tax-and-spend policies – that higher NI contributions, coupled with National Living Wage increases, have triggered a worrying rise in unemployment.

On the bright side, business is looking more resilient, as shown by upbeat retail sales figures and the S&P Composite PMI February numbers.

What they conceal, however, is that companies are still shedding jobs, turning instead to automation or AI, indicating a jobless recovery.

Chancellor Rachel Reeves will of course be delighted by the sounder public sector finances ahead of her Spring Statement.

She will try to do as little as possible to stick to her strict fiscal rules, thus keeping the bond markets on side. For now.

Yet the bumper tax take does not give Reeves any respite. 

The public finances are still sticky and, because of anaemic growth, Labour will need to borrow more.

More pertinently, the Chancellor must confront the elephant in the room – resolving the UK’s defence ‘funding crisis’.

It is a great mistake for her to allow this row with the Ministry of Defence over the £28billion budget shortfall – and the delay in the Defence Investment Plan (DIP) – to rumble on as geopolitical tensions rise.

As top military chiefs keep warning, our Armed Forces and defence capability are in a parlous state, having been chronically underfunded for years.

Labour, they argue, must be honest with the public about the scale and nature of the problem.

Like BAE Systems, defence contractor Chemring is also warning that the DIP delay is adding uncertainty to an industry that needs years to plan.

Reeves, and Prime Minister Keir Starmer, should be listening closely to the military and industry.

They must be brutally honest about defence spending with their backbenchers as well as with the public.

If we want a robust military, we have to pay for it. There are three ways to do so: raising taxes again, borrowing more, or cutting and reforming the ballooning welfare bill – the most obvious option.

Such a critical issue requires support from across the political divide.

At the very least, the PM should come out of hiding and call for a cross-party Commons debate on what is blowing up to become a deeply profound crisis in national security.