Streeting rules out VAT on private healthcare

Economists have said taxes will have to go up in the autumn Budget if the chancellor is to meet her self-imposed rules on borrowing to fund public services.

In her Labour conference speech on Monday, Reeves said the government was facing difficult choices and promised she would not take risks with the public finances.

The chancellor pledged to keep "taxes, inflation and interest rates as low as possible".

But hinting at further tax rises, she said the government's choices had been made "harder" by international events and the "long-term damage" done to the economy.

Labour pledged in its election manifesto not to raise VAT, along with National Insurance, or the basic, higher, or additional rates of income tax.

But newspaper reports have suggested officials at the Treasury are examining broadening the scope of VAT to help raise further revenue.

VAT is levied at a standard rate of 20% on most goods and services in the UK, unless they are classed as reduced or zero-rated.

Most private healthcare services are currently exempt from VAT, apart from some procedures which are classified as being primarily cosmetic.

Private school fees were also previously exempt, but the government introduced VAT on school fees in January, estimating it could raise £1.7bn a year by 2029/30.

In an interview ahead of her conference speech, Reeves was asked if VAT could rise and she said: "The manifesto commitments stand."

That form of words has been echoed by senior ministers at Labour's conference, including Prime Minister Sir Keir Starmer.

But when pressed over whether she would have to put up taxes, Reeves said "the world has changed" in the last year - pointing to wars in Europe and the Middle East, US tariffs and the global cost of borrowing.

"We're not immune to any of those things," she added.

Former Labour leader Neil Kinnock has called for Reeves to put VAT on private healthcare to raise money for the NHS.

The Labour peer told the i newspaper removing the VAT exemption on private healthcare would provide "vital funding" for public services and be "widely supported" by the public.

The policy is supported by the Good Growth Foundation think tank, which estimates putting VAT on private acute healthcare could raise more than £2bn.

The high cost of long-term government borrowing and weak economic growth has fuelled speculation the chancellor will need to increase taxes.

Last month, an independent think tank, the National Institute of Economic and Social Research (Niesr), estimated that the chancellor would need to plug a £50bn gap in the public finances.

But the chancellor played down the figure and criticised such forecasters, saying "a lot of them are talking rubbish".