Rachel Reeves says £66billion tax rises left Britain better off

Rachel Reeves has insisted Britain would have been worse off without the £66billion of tax rises introduced during her time as chancellor.

She claimed the controversial measures helped bring down interest rates and saved some families as much as £800 on their mortgages.

In her first major public speech since Andy Burnham removed her from the Treasury, Ms Reeves defended the decisions made across her two Budgets.

Speaking at Harvard University on Monday, she said the tax increases were needed to end what she called a "failed austerity experiment".

Ms Reeves admitted the measures involved "difficult choices" and were "not without controversy", but argued there was no painless alternative.

"There was no way to raise revenue on the scale required which would be free of pain," she said.

The former chancellor claimed her approach reduced government borrowing and eased pressure on interest rates, cutting mortgage costs for some families by as much as £800.

One of her most controversial decisions was a £25billion increase in employers' National Insurance contributions.

The rate rose from 13.8 per cent to 15 per cent, while the salary threshold at which businesses begin paying the levy fell from £9,100 to £5,000.

Business leaders reacted angrily at the time, warning that the increase would damage jobs and investment.

However, Ms Reeves said she had deliberately focused tax rises on businesses and wealthier households to "shift the tax system towards rewarding work, enterprise and investment, rather than the passive accumulation of wealth".

She argued that her approach was intended to break Britain's "low-wage, low-investment cycle".

"Many disagreed with those decisions then. Many still do. But without them, the UK economy would have been weaker," she said.

Her record has faced strong criticism from economists, however. Bank of England Governor Andrew Bailey has warned that the tax increases contributed to higher prices and rising unemployment.

By the end of Ms Reeves's time as chancellor at the close of 2025, Britain's unemployment rate had risen to 5.2 per cent, its highest level in five years.

The Office for Budget Responsibility's assessment following her 2025 Budget forecast that the country's tax burden would reach a post-war peak of 38.3 per cent of economic output.

Across her two fiscal statements, Ms Reeves raised taxes by £66billion by targeting businesses, wealthier individuals and savers.

Her first Budget alone increased the tax take by £40billion, lifted public spending by roughly £70billion a year and left borrowing approximately £28billion a year higher over the subsequent five years.

Drawing on Treasury modelling, Ms Reeves contended that without her tax decisions, the government would have needed to borrow an extra one per cent of GDP this year, equivalent to around £30billion.

She argued this additional borrowing would have driven interest rates upward, adding as much as £800 to the mortgage repayments of a family securing a £200,000 two-year fixed-rate deal.

Ms Reeves also claimed her policies laid the groundwork for her successor, John Healey, to deliver cost of living support in last week's Budget.

The £24billion fiscal buffer she built up allowed Mr Healey to absorb the economic impact of the Iran war while still maintaining a £15billion cushion of headroom.

Ms Reeves used her Harvard address to renew her call for Britain to rejoin the European Union, describing the 27-member bloc as the "single biggest opportunity" to boost incomes, fund public services and strengthen national security.

"I firmly believe Britain's future lies inside the European Union. Economically, it is the credible choice. Britain's values, and a serious assessment of the geopolitical scene today, tell us it is the radical choice too," she said.

No deal with any other nation or trading group could make up for the distance from Britain's closest and largest commercial partner, she added.

The former chancellor also sounded the alarm over artificial intelligence, warning that too little attention was being paid to the threat it posed to Britain's strengths in services and knowledge-intensive industries.