Labour rakes record £100 BILLION of taxes in July as Rachel Reeves plots new raid on middle classes to repair ‘chronically weak’ public finances

Labour raked in a record £100 billion of taxes last month – but fears are growing that Rachel Reeves is coming for more with the public finances in ‘chronically weak condition’.

The haul – the highest ever for July – was boosted by Rachel Reeves’ employer national insurance raid. However, that policy is also blamed for making it harder for firms to hire and pushing up unemployment.

Ms Reeves’ tax hike saw national insurance bring in an extra £2.6 billion last month compared to last year and £9.5 billion extra for the financial year to date.

It helped the government bring July’s borrowing – the gap between tax revenues and spending – to a lower than expected £1.1 billion.

That is down from £3.4 billion in July last year. However, total borrowing for the financial year so far, from April to July, is running at £60 billion, £6.7bn ahead of 2024.

Even as the tax take surges, spending is ballooning thanks to pay rises for civil servants and Britain’s soaring benefit bill.

Meanwhile, Britain’s debt pile stands at a staggering £2.89 trillion, or 96 per cent of the size of the economy. And the cost of servicing that debt so far this year is £41 billion.

Economists think the Chancellor will need to put up taxes even further at this autumn’s Budget as she looks to close a gap of £50 billion to meet fiscal rules that commit her to bring down borrowing and debt.

Public sector net borrowing in the year to July

That is fuelling speculation that she could stage raids on property tax, pension lump sums or inheritance tax, or carry out a ‘stealth’ hike by freezing income tax thresholds.

Tory business spokesman Andrew Griffith said: ‘With the amounts being squeezed out of taxpayers at record highs yet the Chancellor still craving more, either she quits her addiction to higher public spending or someone needs to send her to rehab’.

Experts said the public finances remain fragile after U-turns on welfare reforms and winter fuel payments wrecked the Chancellor’s plans and as traders in UK bonds, known as gilts, lose faith in Labour – pushing up the cost of borrowing to levels not seen since the 1990s.

Meanwhile, economic growth is slowing and doubts are growing about whether Britain’s dismal productivity growth – the ability to work more effectively and get more done per hour – can be restored to the levels needed to sustain a recovery.

That looks increasingly likely to spell further painful tax rises in October’s budget.

Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said: ‘The big picture remains that the public finances are in chronically weak condition.

‘The Chancellor faces surging gilt yields and a likely productivity downgrade from the OBR [Office for Budget Responsibility] in the October forecast round.

‘The litany of policy U-turns has only compounded the Government’s fiscal woes’.

Alex Kerr, UK economist at Capital Economics, said: ‘Today’s release does little to brighten the gloomy outlook ahead of the Budget later this year’.

Rachel Reeves is feared to be plotting a new tax raid on the middle classes

Mr Kerr estimates the Chancellor may have to raise as much as £27 billion.

‘Given that she is struggling to stick to existing spending plans and we doubt the gilt market will tolerate big increases in borrowing, most of that will have to be funded by tax rises’.

Matt Swannell, chief economic advisor to the EY ITEM Club, said: ‘The rising cost of government debt, changes to welfare reform and the possibility of a less optimistic growth forecast will very likely see tax rises introduced at the Autumn Budget if fiscal rules are to be met’.

Darren Jones, Chief Secretary to the Treasury, said: ‘Far too much taxpayer money is spent on interest payments for the longstanding national debt.

‘That’s why we’re driving down government borrowing over the course of the parliament – so working people don’t have to foot the bill and we can invest in better schools, hospitals, and services for working families’.