Rachel Reeves' War on the Working Class
04/04/25
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RACHEL REEVES IN MEETING WITH KEIR STARMER, IMAGE: SIMON DAWSON
Rachel Reeves’ approach to supporting the working class’s finances is as successful as trusting a pickpocket to protect your wallet.
In her Spring Budget, she announced a £14 billion package to repair the UK’s broken finances and provide a £9.9 billion headroom to meet fiscal targets. To achieve this, she is continuing with her unnecessary welfare cuts to the UK’s already struggling poorest. According to the Office for Budget Responsibility (OBR), this measure will save £3.4 billion. However, the government’s own impact assessment states that 250,000 people will be pushed into poverty, including 50,000 children.
It is difficult to comprehend the UK government actively choosing to effectively condemn 50,000 children to a perpetual cycle of poverty in the name of fiscal stability, especially when alternative policies could boost UK growth while raising significant revenue. Later, I’ll discuss a solution that could provide £55 billion annually. In the Labour election campaign, Reeves said, “I don’t see the way to prosperity as being through taxation. I want to grow the economy.” It appears she has reversed her commitment to economic growth as the rise to National Insurance Contributions (NICs) for employers seems poised to become a failure in the making. As detailed in her budget last autumn, Reeves announced an increase in employer’s NICs from 13.8% to 15%, along with a decrease in the threshold whereby employers are eligible to pay NICs on the employee’s earnings, down from £9100 to £5000 a year, coming into effect on 6 April. These are forecast to raise £23.8 billion and £25.7 billion a year for the next five years.
Nearly a third of businesses are planning to reduce their number of employees through redundancies or by recruiting fewer workers. Notably, business confidence plummeted in the retail industry, from +23 to +1. This stark drop represents a significant concern as 83% of retail workers have experienced a decline in their mental health over the last year, with this additional financial stress set to only make it worse.
The labour market is already struggling. A survey from KPMG and REC in January found that demand for UK labour reached its lowest since August 2020.
Moreover, 42% of firms are likely to increase prices due to wage-related costs. This policy, branded as a tax on firms, is expected to affect consumers and employees the most through lower real wages due to smaller salary increases and, overall, a further escalation in the cost of living. This aligns with the OBR’s belief that 75% of the cost will fall onto workers “via lower real wages”.
Furthermore, 19% of firms plan to cut training expenditure. They will likely achieve this by consolidating their current workforce and reducing graduate recruitment. Challenges for graduates are already intensifying, with the average UK employer receiving 140 applications per graduate vacancy in 2023-24, a 59% increase from the previous year.
REEVES DELIVERS SPEECH ON 'FIXING THE FOUNDATIONS', IMAGE: ZARA FERRAR
Rachel Reeves asserts, “The Labour Party is the party of work. We believe that if you can work, you should work. But if you can’t work, you should be properly supported.” However, it is clear from her policies that Labour is no longer for the working class. The increase in employer NICs will lead to a further tightening of the job market at a time when an increased number of those disabled who ‘can work’ will be unable to work due to the difficulty in finding employment. It is my view — and the view of a significant majority of young people — that Rachel Reeves’s strategy for addressing the fiscal deficit is misdirected. The Labour Party has lost its roots of being for the working people.
While the disadvantages of tax increases and welfare cuts are readily apparent, it can be difficult to find feasible alternatives.
Many on the economic left advocate for an increase to the 45% top rate of income tax or an increase of capital gains tax. I sympathise with this approach as wealth inequality has increased significantly in the UK, leaving the younger generation a difficult journey to get on the housing ladder, let alone achieving financial freedom. However, these tax rises wouldn’t create significant revenue, partly due to tax avoidance, and could reduce investment. A solution to this, one I believe can bridge the gap between the economic left and right, is a land tax.
HENRY GEORGE, AUTHOR OF PROGRESS AND POVERTY, IMAGE: PUBLIC DOMAIN VIA WIKICOMMONS
Firstly, what is a land value tax? Well, it is a fiscal levy applied exclusively on land, excluding any buildings or improvements. The idea of a land tax was first proposed as a serious concept by Henry George in his 1879 book Progress and Poverty. The ideology he created, aptly named Georgism, is a highly niche topic area in the economics community. The idea behind this tax is simple. As the economy grows, land values increase. However, this land has seen no improvement; it gains value by simply existing. The landowners and speculators who own this unimproved land receive this profit by doing nothing. When economic agents earn a profit despite not adding value, this is called ‘rent-seeking’.
Yet, a yearly tax on land would disincentivise land hoarding and instead promote its development. In previous years, this may have had a smaller effect due to the arduous process of receiving planning permissions, but combined with Reeves’s attempts to curb this limit, the tax could work wonders for increasing the number of homes available to those in the UK. A mere 1% annual tax on the £5.5 trillion worth of privately owned land could generate £55 billion of income each year for the government. Such a large figure far exceeds the savings from welfare cuts and revenue from increasing employer NICs. This substantial figure could enable the government to reverse the cuts to the winter fuel allowance, boost NHS investment, or increase the personal allowance, putting money back into the pockets of taxpayers. It is not a theoretical solution, as it’s been used by countries like Denmark, who’ve had a land tax, called the ‘Grundskyld’, since 1924. The tax depends on the municipality and varies between 0.6% and 2.4%, with land value reassessed every two years.
A common concern is the burden it could place on ordinary homeowners. However, this can be mitigated through exemptions on primary residences, with the tax only applying to second homes, investment properties and undeveloped land used for speculation. The only issue is that the political will for a land tax does not exist. Since 70% of UK land is owned by 1% of the population, this is unsurprising as the landowners and those who benefit from land speculation have significant influence and would strongly oppose the tax. Ultimately, Reeves’s plans to curb the UK’s fiscal issues, with austerity measures and tax rises that disproportionately hurt the working class, are against Labour’s traditional values. Instead of following the formula that’s failed us for the last 15 years, we should look to try something different, with a land tax like those found in Denmark.
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