Chancellor Rachel Reeves admits she was 'wrong' on taxes during election campaign

Chancellor Rachel Reeves admits she was “wrong” when she said she would not need to raise taxes during the general election campaign.

Elsewhere Scottish Public Finance Minister Ivan McKee has suggested there will not be any further tax rises in the Scottish budget next month.

At a campaign event on June 11, Ms Reeves said she would not need to raise taxes beyond the increases already set out in the Labour Party manifesto.

Chancellor Rachel Reeves being interviewed on BBC Sundays with Laura Kuenssberg | Jeff Overs/BBC

However, when she set out her 2025/26 budget last week, she announced £40 billion worth of tax rises, including increases to employers’ National Insurance contributions and changes to inheritance tax and capital gains tax.

Speaking to Sky News’s Sunday Morning with Trevor Philips, Ms Reeves said: “I was wrong on June 11, I didn’t know everything.

“When I arrived at the Treasury on July 5, just over a month after I said those words, I was taken into a room by the senior officials at the Treasury and they set out the huge black hole in the public finances, beyond which anybody knew about at the time of the general election because the previous government hid it from the country, they hid it from parliament, and indeed they hid it from the independent official forecasters at the Office for Budget Responsibility.

“So when I went into that budget last week, I had to put our public finances back on a firm trajectory.”

The Steamie newsletter brings you unrivalled political analysis - sign up here

The UK Government claims there is a £22bn black hole in public finances inherited from the previous Conservative government - the Conservatives have dismissed this claim as “fiction”.

The Chancellor also said she did not consider or discuss raising employer National Insurance contributions before the general election.

In her budget she increased these contributions by 1.2 per cent to 15 per cent and lowered the threshold at which this starts being paid from £9,100 to £5,000.

During an interview with BBC Sundays with Laura Kuenssberg, she said: “No, this was not something that was on the agenda before the election.”

Chancellor Rachel Reeves leaving Downing Street before making her budget statement | Stefan Rousseau/Press Association

She added the previous Conservative government had cut employee National Insurance contributions on a “false premise”, and said she thought it would be “wrong” to put that back up.

Ms Reeves added: “It would have been felt immediately in the payslips of working people rather than asking businesses to contribute, and second it would have been a direct breach of our manifesto commitment, so we had to make difficult choices - but leadership is about difficult choices.”

Economists at the Institute for Fiscal Studies and the Resolution Foundation have suggested Labour’s current spending plans mean the chancellor will have to find an extra £9bn after next year to avoid making cuts to unprotected government departments.

Ms Reeves is counting on economic growth to avoid further tax rises in the future.

Elsewhere Scottish Labour leader Anas Sarwar praised the chancellor’s budget as “an end to the era of austerity”.

He said the budget will deliver new investment in public services and is prioritising economic choice, which is “good for Scotland”.

Scottish Labour leader Anas Sarwar

Speaking to BBC The Sunday Show, he said: “This ended the era of austerity with £1.5bn more for the Scottish Government to spend this year and £3.4bn of investment next year, with capital increases right now and £661 million of capital increases next year.

“We lobbied for an increase to the minimum wage, which brings a pay rise for 200,000 of the lowest paid Scotland, and lobbied for GB Energy - all of these things are really important.

“You can hunt for bad stories for Scotland, but the reality is this is good news.”

Mr Sarwar added Scots understand the “mess” left from the previous government cannot be fixed by the Labour Party in one budget, and said he recognises there is “lots more work to do” on delivering for Scotland.

His comments have been criticised by the Scottish Conservatives, who say the 2025/26 UK budget threatens jobs and Scots’ pay packets.

Craig Hoy MSP, the party’s finance spokesman, said: “Labour’s socialist tax-hiking budget is straight out of the SNP’s playbook and will hammer hard-working Scots.

“Anas Sarwar’s claim that Labour was fulfilling its promises is an out and out lie.”

He said the budget “threatens to decimate the agriculture sector”, imposes extra taxes on the North Sea oil and gas sector, and “betrays” the Scotch whisky industry.

Mr Hoy added: “This is a budget of broken promises and Labour will rightly pay a heavy price for it.

“Hard-working Scots who just want to keep more of their own money and get ahead in life will find Anas Sarwar’s claim that this budget is good for Scotland deeply insulting.”

Meanwhile Scottish Public Finance Minister Ivan McKee has suggested tax hikes are unlikely in next month’s budget.

Scottish Public Finance Minister Ivan McKee | John Devlin/National World

When asked on BBC The Sunday Show if Scotland had “reached the point where raising taxes any further might be counterproductive”, Mr McKee said that was a “very strong consideration”.

In last year’s budget the Scottish Government increased the top rate of tax from 47p to 48p in the pound.

However behavioural responses offset around 90 per cent of the money raised, according to the Scottish Fiscal Commission.

Instead of bringing in £53m, it is estimated the government will only take in £8m.

The commission’s forecast also suggested the new 45 per cent income tax band on incomes between £75,000 and £125,140 should have raised £147m but behavioural changes mean the yield will have dropped by 59 per cent to just £74m.

Finance Secretary Shona Robison will set out the Scottish budget for 2025/26 on December 4.