Rachel Reeves has been warned there is “absolutely no need” for tax rises in October after yesterday’s GDP figures showed the economy is growing at a “stormy” pace.
Figures published this morning by the Office for National Statistics (ONS) show gross domestic product rose by 0.6% between April and June.
Liz McKeown, head of statistics at the ONS, welcomed the news, noting that the economy has now seen two quarters of strong growth following a weak performance in the second half of 2023.
The Conservatives have now said that Chancellor Rachel Reeves' “message of doom and gloom” has been exposed as a “complete fabrication” by the recently published figures.
Laura Trott, shadow Chancellor of the Exchequer, writes in the Express: “However hard she tries to pretend otherwise, the facts speak for themselves and this week is no exception.”
She warns: “There is absolutely no need or justification for tax increases.”
Excluding the post-pandemic recovery in 2020, the boost was the strongest half-year for growth since 2017.
At a press conference last month, Ms Reeves claimed: “I have repeatedly warned that whoever won the general election would inherit the worst conditions since the Second World War.”
“What I've seen over the last 72 hours only confirms that.”
However, Shadow Minister of Finance Jeremy Hunt argued that yesterday's GDP figures were “further evidence that Labour has inherited a growing and resilient economy”.
Mr Hunt, who leads the opposition to Labour's economic plans, added: “The Chancellor's attempt to blame her economic legacy on her decision to raise taxes – tax rises she had always planned – will not resonate with the public.”
“Labour promised over 50 times during the election that they would not raise taxes and we will hold them to account for their promises.”
Shadow Foreign Secretary and Conservative Party leadership candidate James Slim warned that Labour's claims about the state of the economy are an attempt to promote tax rises on October 30.
Mr Cleverly argued: “The economy is growing, unemployment is falling and inflation is under control”.
“That's what we handed over to the Labour Party, and what they do is what they always do: find excuses to raise your taxes.”
Finance Minister Rachel Reeves sought to use the figures as further evidence of the tough task she faces in getting the economy moving again.
Ms Reeves said: “We are under no illusions about the scale of the challenge we face from the Conservatives after more than a decade of low growth and a £22 billion black hole in the public finances”.
“That is why we are now taking the difficult decisions to restore the foundations of our economy.”
Her gloomy tone was quickly quashed by KPMG's Yael Selfin, who described the figures as evidence of “another great quarter”.
The company's chief economist added that while GDP is expected to slow later this year, overall growth for 2024 could reach 1.1%, which is “well above expectations from early this year.”
The strong economic performance indicators have led to demands that Ms Reeves abandon plans to raise taxes later this year.
Shadow Chancellor of the Exchequer Gareth Davies MP said Labour “must not jeopardise this growth by raising taxes”.
The think tank Institute for Economic Affairs added that raising taxes is “the last thing we need right now”.
Matthew Lesh, the group's director of public policy, told the Express: “The UK economy is finally starting to show signs of life after a miserable few years.”
“This means higher revenues for the treasury and even fewer excuses to raise taxes.
“The last thing we need now is the Chancellor undermining the recovery by raising taxes on savings and investments.
“There is no justification for tax increases at this time, especially when they appear to be largely driven by a lack of control over public sector spending and wage growth.”
Rachel Reeves and Sir Keir Starmer spent the election campaign promising not to raise taxes on 'working people', ruling out increases in income tax, VAT or National Insurance.
However, there are rumours that new taxes on wealth, assets and savings are being considered, as Ms Reeves claims she needs to plug the £22bn gap left by the previous government.
Ms Reeves told the News Agents podcast: “I think we're going to have to increase taxes in the budget.”
She refused to rule out that there might be possibilities for inheritance tax, capital gains tax or pension tax deduction reform.
During a visit to the US last week, Ms Reeves again refused to rule out a rise in capital gains tax, which is levied on profits from the sale of assets such as second homes or shares that are not held in an ISA.
The finance minister said it was important to “get the balance right” but insisted she would set out her policy in the October budget.
She added: “It is always important to get the balance right when determining tax policy.”
“Of course we need to generate revenue to fund essential public services, but we also need to grow the economy.
“I will not do anything that makes it harder to achieve that economic growth and prosperity.”
Yesterday's good news was further reinforced by the fact that UK GDP topped the international rankings for the second quarter in a row.
Among G7 countries, the UK's 0.6% increase was only slightly behind the US's 0.7%, and significantly higher than in Canada (0.4%), the eurozone (0.3%), France (0.3%) and Germany (0.2%).
Jake Finney, economist at PricewaterhouseCoopers, said: “The latest growth figures provide further evidence that the economy is gradually reaching a turning point as the new administration takes office.”
Suren Thiru of the Institute of Chartered Accountants said the ONS announcement showed the UK recovery had “gained steam”, despite strikes and weather chaos in the first half of the year.