So, will your shopping get pricier? Prime Minister Keir Starmer isn’t saying no.
In a recent BBC interview, Starmer dodged questions about potential VAT increases, simply repeating: “The manifesto stands.” But when you’re staring down a £20bn budget black hole, that phrase starts feeling less like a promise and more like a politician’s favourite dodge.
Labour’s manifesto explicitly ruled out hiking income tax, national insurance, and VAT. Yet with the Autumn Budget looming and the Treasury scrambling for cash, those red lines are looking increasingly blurry. Here’s what you need to know about the potential tax shake-up heading your way.
The £20bn Problem: Why VAT Is Back on the Table
Labour inherited a fiscal mess (as everyone does), and now Chancellor Rachel Reeves needs to plug a massive gap in public finances. The simplest solution? Raise taxes.
According to HMRC modelling, bumping the standard VAT rate up by just one percentage point could generate £8.8bn in 2026/27. That’s a tempting number when you’re billions in the red.
But here’s the twist: while one hand might raise VAT across the board, the other could be cutting it on energy bills. Reeves has reportedly told cabinet members that “all options are on the table,” including slashing the 5% VAT on domestic energy to zero. That would save households about £86 annually but cost the Treasury £1.75bn per year.
So which is it? Tax relief or tax hikes? Probably both, depending on what you’re buying.
Union Pressure: “Change the Rules or Face the Consequences”
It’s not just voters who are getting restless. Unite, one of Labour’s biggest union backers, is rattling sabres.
General Secretary Sharon Graham called the upcoming Budget a “critical point” for whether Unite members stick with Labour or walk away. Her message was blunt: ditch the fiscal rules, spend more money, or risk losing union support.
“Other countries are doing it,” Graham told Sky News. “We should stop dancing around our handbag and do that.”
Translation? Labour’s fiscal conservatism isn’t sitting well with its traditional base. If the Budget doesn’t deliver real spending increases, Labour could face a grassroots rebellion.
Starmer’s Defence: “Judge Me in Five Years”
Facing mounting criticism, Starmer’s playing the long game. He argues voters should assess him on three things by the next election:
- Living standards — Do people feel genuinely better off?
- Public services — Is the NHS actually improving?
- Security — Do people feel safe at home and nationally?
Fair enough. But voters tend to have shorter memories and less patience. When your cost of living is climbing now, “wait five years” isn’t exactly a comforting answer.
Starmer insists he needs “space” to deliver on his promises. The question is whether the public—and his own party—will give it to him.
What This Means for Your Wallet
Let’s cut through the political spin. If VAT does rise, you’ll pay more for most goods and services (food and children’s clothes are typically exempt). Even a 1% increase adds up over a year of shopping, dining out, and general spending.
On the flip side, scrapping VAT on energy bills would provide modest but welcome relief. £86 a year won’t change your life, but it’s something.
The real concern? Labour promised not to touch these taxes, and now they’re keeping the door open. That erodes trust, and in politics, trust is currency.
The Bottom Line
Starmer’s refusal to rule out VAT increases suggests Labour is preparing the ground for tax hikes—even if they won’t admit it yet. With a £20bn shortfall and pressure from both unions and voters, something has to give.
The Autumn Budget will reveal whether Labour sticks to its manifesto or rewrites the rules. Either way, expect your wallet to feel it.
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FAQ: VAT, Labour, and Your Money
Q1: Will VAT definitely increase under Labour?
A: Not confirmed. Starmer hasn’t ruled it out, but he hasn’t announced it either. The Autumn Budget (two months away at the time of his interview) will clarify Labour’s tax plans. Given the £20bn budget gap, some form of tax rise seems likely.
Q2: How much would a 1% VAT increase cost me?
A: It depends on your spending habits. HMRC estimates a 1% VAT rise would generate £8.8bn nationally, meaning the average household could pay several hundred pounds more annually across all VAT-able purchases.
Q3: Is Labour really going to cut VAT on energy bills?
A: Possibly. Removing the 5% VAT on domestic energy would save households about £86 per year but cost the Treasury £1.75bn annually. It’s one option Reeves is reportedly considering to ease cost-of-living pressures.
Q4: Why is Unite threatening to disaffiliate from Labour?
A: Unite wants Labour to abandon its strict fiscal rules and increase public spending dramatically. General Secretary Sharon Graham sees the Budget as a “critical point”—if Labour doesn’t deliver significant investment, Unite may withdraw its support and funding.
Q5: What happens if Labour breaks its manifesto promises?
A: Politically risky. Labour explicitly ruled out income tax, national insurance, and VAT increases in its manifesto. Breaking those promises could damage credibility and fuel opposition attacks, but the alternative is leaving a £20bn hole unfilled.
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Effective Date: 15th July 2025
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