Rachel Reeves's 'economic illiteracy' exposed as 'cruel' war on pensioners backfires
Rachel Reeves is under fire by campaigners and MPs following her plans to close the £22billion black hole in the public's finances.
Mel Stride has slammed Labour’s VAT raid on private schools and the decision to scrap winter fuel payments for 10 million pensioners as “inept and cruel”.
The Tory leadership candidate said both policies would have “behavioural effects” which had not been considered and would undermine potential savings as he labelled the Government economically illiterate.
The shadow work and pensions secretary said: “Restricting winter fuel payments to those on pension credit will see more pensioners going on to that benefit to qualify. Similar behavioural effects when free TV licences were restricted to those on benefits.
“800,000 qualifying pensioners are not claiming pension credit. If just a quarter now do then cost is £440m plus £50m in winter fuel payments, so half a billion of the supposed savings wiped out. Ignore behavioural effects at your peril.
“Similar story for VAT on school fees. Every private school that closes, every child that moves to a state school will cost the public finances dearly. Analysis by [the Institute for Fiscal Studies] suggests 40,000 could pour into the state sector. Both these policies inept and cruel.”
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The winter fuel payments of up to £300 have been made available to everyone above state pension age.
But pensioners from this winter will only receive the payment if they are receiving pension credit.
The Treasury said the winter fuel changes would see the number of pensioners receiving the payments fall from 11.4 million to 1.5 million – so just under 10 million would miss out.
The move has sparked fury among campaigners, MPs and members of the public.
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Meanwhile VAT will be charged on private school fees from January, the Government has confirmed.
The new Labour government is pushing ahead with its plans to remove the VAT exemption and business rates relief for private schools to enable funding for 6,500 new teachers in state schools.
Treasury minister James Murray said the Government will apply 20% VAT to private schools in the UK from January 1 – and it will also apply to “pre-payments of fees” for terms starting in the new year.
It comes amid concerns that removing the VAT exemption could lead to an exodus of students into the state school system amid private school fee rises.
Private schools are worried the policy will have a “major impact on students and staff” and some schools may face closure, a headteachers’ union said.
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Ms Reeves is trying to fill a £22 billion black hole in the public's finances.
This mean Laour will likley raise taxes in the Budget on October 30, the Chancellor said.
She insisted that Labour would stick to its election manifesto promises not to raise national insurance, income tax or VAT, but left open the possibility for other tax hikes at the fiscal event.
She said: “We had in our manifesto a commitment to fiscal rules to balance day-to-day spending through tax receipts, and by the end of the forecast period, to get debt down as a share of GDP.
“Those are sensible fiscal rules to keep a grip of the public finances. We also made other commitments in our manifesto, not to increase national insurance, VAT or income tax for the duration and we’ll stick with those.”
Pressed again about which taxes could go up, she added: “We will have a Budget on October 30 and ahead of that Budget, we will have a forecast by the Office for Budget Responsibility on this occasion, based on accurate numbers.”
