Reeves: I was wrong to say we didn’t need higher taxes

Rachel Reeves, the Chancellor
Rachel Reeves, the Chancellor, has blamed the Conservatives for leaving a ‘black hole’ in public finances - Ben Whitley/PA

Rachel Reeves has admitted she was “wrong” to say before the election that higher taxes would not be needed.

The Chancellor has been accused by opponents of misleading the public by saying during the campaign that tax rises would not be needed if Labour took office – only to increase taxes by £40 billion in last week’s Budget.

However, she defended herself by claiming that she did not know how bad the public finances were when she made the assertion.

On June 11, weeks before polling day, Ms Reeves said: “I don’t need to become Chancellor to know what a mess the government have made of public finances, of public services and the fact that the tax burden is at its highest level in 70 years.

“We don’t need higher taxes. What we need is growth, and I don’t want to, and I have no plans to, increase any taxes beyond those we have already set out.”

Challenged on Sky News on Sunday about whether this was incorrect, Ms Reeves said: “I was wrong on the June 11.

“I didn’t know everything, because when I arrived at the Treasury on July 5, so just under 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.”

The comments build on Ms Reeves’s claim that it was the discovery of a £22 billion “black hole” in the public finances left by the Tories that forced her to raise taxes by much more than planned in the Budget.

Jeremy Hunt, the former Conservative chancellor, has contested that claim, arguing it is being used by Labour as an excuse to justify a vast tax rise.

The Office for Budget Responsibility, the Government’s independent economic forecaster, last week did not endorse the Treasury’s £22 billion figure, saying instead that it found only £9.5 billion of hidden spending pressures it had not been informed about before the Tories’ March Budget.

It came as the Chancellor defended another aspect of her Budget by insisting that allowing farmers to pass estates on without paying inheritance tax was no longer “affordable”.

Ms Reeves has been facing anger from farming bodies after ending the long-standing allowance for agricultural land to be passed down generations without paying inheritance tax.

Rachel Reeves appeared alongside Kemi Badenoch, the new Conservative leader, on BBC One on Sunday
Rachel Reeves appeared alongside Kemi Badenoch, the new Conservative leader, on BBC One on Sunday - Jeff Overs/BBC/PA

During a BBC interview, she was confronted with a video message from a fifth-generation farmer in Yorkshire who said her family now faces a £1 million tax bill.

The Chancellor gave no indication that she would consider reversing her inheritance tax rise, instead arguing that the old system was too costly because of strains on public finances.

She said:  “Last year, the benefits of agricultural property relief – 40 per cent of the benefit was felt by seven per cent of the wealthiest landowners. I don’t think that it is affordable to carry on with a relief like that when our public services are under so much pressure.

“And of course farmers as well rely on good public services, whether that’s our NHS, our roads or our schools. That money will be put back into improving our public services and putting our public finances on a firm footing.”

The argument that allowing farmers to pass on their estates without paying inheritance tax is no longer affordable for the state – despite vast tax rises and spending increases being announced elsewhere in the Budget last week – is likely to rankle with those who will feel the impact.

Under the current rules, farmers can hand their estates down after death without paying inheritance tax. But from April 2026 that will changed.

Instead, only farming assets worth up to £1 million can be passed on tax-free, with those above this threshold facing an effective 20 per cent tax charge.

The move was taken to close a “loophole” that allows people who are not traditional farmers to buy up agricultural land to avoid paying inheritance tax. However, it has led to warnings that small farms that have little income, but agricultural land worth above that amount, will be forced to sell up to pay the new tax bills.

Ms Reeves defended the policy by arguing that “only a very small number of agricultural properties will be affected”.

She noted that each member of a married couple benefits from £1 million agricultural property relief. They can also benefit from regular inheritance tax support of up to £1 million. She arged that means many farming families, in effect, will be able to pass on estates worth up to £3 million without paying any inheritance tax.

However, anger continues to build from the agricultural community and its representatives.

Jeremy Clarkson, the former Top Gear presenter who owns a farm, wrote in The Sunday Times: “I rarely write angry. But today I’m forced to make an exception because Rachel Reeves announced in her budget that farmland is no longer exempt from inheritance tax. And that could be the last straw for farmers who are already struggling to cope.”

Both the Conservatives and the Liberal Democrats have criticised the policy change.

Jeremy Clarkson and Kaleb Cooper - Clarkson's Farm
Jeremy Clarkson, the former Top Gear presenter, who owns a farm, said the tax change ‘could be the last straw for farmers’ - Television Stills

The Chancellor also doubled down on the decision not to exempt social care providers or GPs from the rise in employers’ National Insurance, despite warnings from the sector.

The NHS, unlike private providers of healthcare, is to be given extra money to cover the impact of the tax rise. Critics have questioned what the difference is between the two, given the frontline services that both provide.

Elsewhere in the interview on BBC One, Ms Reeves insisted her Budget was not “ideological” despite tax rises on the most well-off, businesses and those with wealth.

Speaking to Sky News, Ms Reeves conceded that some companies hit by the increase in employers’ NI could pass it on through “lower wage growth”.

However, given Labour’s Commons majority, all elements of the Budget are expected to comfortably be voted through unless ministers reverse their decisions.