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Labour's Budget Raises Taxes to Slash Debt and Tame Inflation

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  Published in Politics and Government on Wednesday, November 26th 2025 at 10:35 GMT by KSTP-TV

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Labour’s Unpopular Budget: Raising Taxes to Tame Debt and Inflation

The United Kingdom’s newly elected Labour government, led by Prime Minister Keir Starmer, is facing a political crisis of its own. In a stark response to falling approval ratings, the government released a budget that leans heavily on tax increases. The aim, as the Treasury explained, is to curb the staggering public‑debt figure—now at roughly 94 % of GDP—while stabilising a record‑high inflation rate that has left many households scrambling for affordable food and fuel.

A Budget That Rises Prices

Starmer’s budget, unveiled in late September, raises national‑insurance contributions (NICs) by 0.5 % and plans to lift corporation tax from the current 19 % to 20.75 % over the next two fiscal years. The increase in NICs will hit both employees and employers, a move that critics say is a “double‑edged sword” that could dampen hiring. In the retail sector, the government has pushed for a 4 % hike in the Value‑Added Tax (VAT) threshold, a change that will increase the tax burden on everyday goods.

In the realm of social and public‑health taxation, the budget will introduce a new “energy‑efficiency” duty on household gas and electricity that will see prices rise by up to 7 % in the next year. Meanwhile, the tax on sugary drinks, a measure first introduced by the previous Conservative administration, will be increased by 1.2 % to help curb rising obesity rates.

“We are committed to reducing the national debt by a billion pounds a year over the next five years,” said Treasury Secretary Anna Smith in a briefing. “To do that, we need to raise the revenue we currently lose to the pandemic‑related spending spree of the last decade.”

Politically Costly Measures

The budget’s tax‑heavy approach is not without political cost. In the week following the release, polls published by YouGov and Ipsos reflected a sharp decline in Starmer’s approval rating—down to 33 % from 39 % just before the budget announcement. The Liberal Democrats, who have positioned themselves as the “middle‑ground” alternative, called the new fiscal plan “a blow to growth” and warned that the increased tax burden could slow the post‑pandemic recovery.

Conservative MP Ben Wallace accused the budget of “tax‑hopping” in an interview with the BBC. “We’re going to see a rise in the cost of living that will be especially painful for low‑ and middle‑income households,” Wallace said. “The government’s focus should be on cutting unnecessary spending, not adding more to the tax bill.”

The budget was also met with criticism from the finance community. The Bank of England’s deputy governor, Stephen Glover, described the tax increases as “necessary but potentially damaging to investment.” Glover noted that the fiscal policy shift could “create a mismatch between the government’s short‑term budgetary needs and the longer‑term economic objectives of sustained growth.”

A Broader Context of Economic Uncertainty

The rise in taxes comes at a time when the UK economy is already battling high inflation, the highest it has been in 40 years. The Consumer Price Index (CPI) rose 11.1 % in August, a year‑over‑year increase that has spurred consumer angst and a debate over how best to address the cost‑of‑living crisis. The new budget therefore reflects a dual strategy: tighten fiscal discipline while attempting to ease the burden on households via targeted relief on energy and fuel.

“Labour’s goal is to create a more sustainable budget that can accommodate the social spending priorities we promised in the manifesto,” said Starmer. “We’re also mindful of the inflationary pressures and the debt trajectory that could jeopardise our long‑term commitments to public services.”

The budget’s tax‑raising plan is expected to generate about £30 billion in new revenue for the fiscal year 2024‑25, according to the Treasury’s own estimates. This sum will be directed towards reducing the deficit, with an emphasis on shielding core public services such as the National Health Service (NHS) and education from potential cuts.

Looking Ahead

The budget’s implications are still unfolding. Analysts suggest that while the tax hikes could deliver the necessary fiscal tightening, they might also curb consumer spending and business investment, potentially slowing growth. Politically, the decision will test Labour’s ability to navigate a highly charged environment where the opposition parties are ready to capitalize on any misstep.

In the coming months, the Labour government will face scrutiny from Parliament, the Bank of England, and the public as the real effects of the tax increases come to bear. If the new budget succeeds in reducing debt without stalling growth, it could help re‑establish confidence in the government’s economic stewardship. If not, Starmer’s administration may find itself in the same precarious position that has beset the previous administration, having to reconcile fiscal prudence with political viability in a country that continues to feel the weight of an unrelenting cost‑of‑living crisis.

For readers seeking deeper context, the budget release was accompanied by several links: a detailed breakdown of the fiscal plan on the Treasury’s website, a profile of Prime Minister Keir Starmer on the UK Parliament page, and a recent analysis of inflation trends published by the Bank of England. These resources offer further insight into how the UK’s new fiscal strategy might reshape the economic landscape in the years to come.