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Reeves to raise taxes by 40 billion pounds annually

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Investors react positively, government bond prices rise

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Company bosses warn higher taxes could undermine economic

growth

By David Milliken, Sachin Ravikumar

LONDON, Oct 30 (Reuters) - Britain's new finance

minister Rachel Reeves announced the biggest tax increases in

three decades in her first budget, as she accused the

Conservatives of leaving public services broken when they lost

July's election after 14 years in power.

Reeves said she would raise taxes by 40 billion pounds a

year - much of it falling on businesses - to cover a 22

billion-pound shortfall inherited by her Labour Party, the lack

of compensation payments, including for victims of an infected

blood scandal, and under-funding of public services.

"Any Chancellor standing here today would face this

reality," Reeves said in her budget speech.

"And any responsible Chancellor would take action. That is

why today, I am restoring stability to our public finances and

rebuilding our public service."

Reeves has said she will not let public debt balloon,

mindful of how former Conservative Prime Minister Liz Truss sent

the bond market into a tailspin two years ago with unfunded tax

cut plans.

Initial reaction to Reeves speech suggested investors were

taking her plans well, with government bond prices rising

further as she addressed parliament.

According to the Institute for Fiscal Studies think-tank,

tax hikes of 40 billion pounds would be equivalent to 1.25% of

economic output, surpassed in recent history only in 1993 by a

budget plan under the Conservatives which raised taxes to shore

up the public finances after a recession and currency crisis.

Reeves said she would raise the rate of social security

contributions paid by employers by 1.2 percentage points to 15%

from April next year, and lower a threshold at which firms start

to pay it - moves which would raise an extra 25 billion pounds a

year in five years' time.

Company bosses have warned that higher taxes on them,

combined with planned new protections for workers and an

increased minimum wage, could undermine Labour's promises to

turn Britain into the fastest-growing Group of Seven economy.

Reeves announced a string of other revenue-raising moves

including changes to the tax rules on capital gains and

inheritances and tax paid by private equity executives and

non-domiciled residents.

Prime Minister Keir Starmer had warned "those with the

broadest shoulders" will have to pay more tax.

But she ruled out making more individuals pay basic and

higher income tax rates by extending a freeze on the threshold

for payments beyond its scheduled expiry in the 2028/29 tax

year.

She also extended a freeze on fuel duty and a cut a tax on

beer served in pubs.

Reeves also said Britain's economy was forecast to grow by

more than expected this year and in 2025 but by less than

previously forecast in the following three years.

Reeves was likely to announce changes to the government's

budget rules to allow her to borrow more to invest in

infrastructure and accelerate Britain's economic growth pace.

Bond strategists say they are confident that Reeves - a

former Bank of England economist - will be more cautious than

former Prime Minister Liz Truss, whose big tax-cut plans

hammered British debt prices in 2022 and led to her resignation.

($1 = 0.7730 pounds)

(Additional reporting by Andy Bruce, Suban Abdulla, Muvija M,

Sachin Ravikumar, Andrew MacAskill, Alistair Smout, Elizabeth

Piper, Catarina Demony, Michael Holden; Writing by William

Schomberg; Editing by Hugh Lawson)