Tony Blair warns £50bn in tax hikes could be needed by 2029 and immigration failure will feed Reform

By James Tapsfield, Political Editor For Mailonline 08:33 09 Jul 2024, updated 10:54 09 Jul 2024

Fears are mounting over a Labour tax raid today after Tony Blair warned Keir Starmer he could need to push up the burden by £50billion.

The former PM raised concern that the extra revenue will be needed unless the government 'changes approach' on issues like AI.

But the intervention will raise fresh alarm after new Chancellor Rachel Reeves was accused of paving the way for taxes.

Ms Reeves issued a doom-laden warning yesterday about the 'spending inheritance' from the Tories.

And she revealed she has already commissioned Treasury officials to conduct a review of the public finances 'so that I can understand the full scale of the challenge'.

Conservatives said it showed their election attack lines about Keir Starmer not being honest about his tax plans were coming true. 

Labour's manifesto pledged the party would not raise the headline rates on income tax, National Insurance or VAT. However, Rishi Sunak argued that there were a host of loopholes in the commitments that Sir Keir would exploit.

The intervention by Sir Tony - who is a close ally of Sir Keir - came in a report released by his institute today. 

It suggests that the government must harness AI to boost productivity, or face an even higher tax burden than that already 'baked in'.

Just to stabilise debt, the analysis found the UK is on course to need a 1.9 per cent increase in the tax to GDP ratio by 2029, equivalent to around £53billion at current prices.

In a round of interviews this morning, Sir Tony told BBC Radio 4's Today programme he was not predicting that is what Labour would do.

'If you don't do this the future is one in which you are going to be poorer.' 

Despite the repeated assurances on tax during the campaign, Labour frontbenchers also left wriggle-room by suggesting they could open the government books and find they were even worse than feared.

That stance was derided at the time by Paul Johnson, director of the respected IFS think-tank, who said: 'The books are open. Everyone knows exactly the ­problems a new government will inherit.'

Ms Reeves yesterday suggested that her first 72 hours in the job had ­convinced her the situation might indeed be worse than it seemed.

In her first major speech as ­Chancellor to business leaders at the Treasury, she said: 'I have repeatedly warned that ­whoever won the General Election would inherit the worst set of circumstances since the Second World War,' she said.

'What I have seen in the past 72 hours has only confirmed that our economy has been held back by decisions deferred and decisions ducked, political self-interest put ahead of the national interest.' 

She added: 'That is why over the weekend I instructed Treasury officials to provide an assessment of our spending inheritance so that I can understand the full scale of the challenge.'

A Tory party ­spokesman accused the Chancellor of ­preparing the ground for  swingeing tax rises.

'Rachel Reeves herself said you don't need to win an election to find out the state of the public finances, admitting that with the OBR, there is already detailed public scrutiny of the country's finances,' the spokesman said. 

'We warned that Labour would attempt this ruse as a cause to raid pensions and raise taxes. It is now clear that is coming to pass, and the British people will pay the price.'

A Treasury source denied that Ms Reeves was already plotting a new tax raid, saying her speech was focused on the need to boost ­economic growth in order to meet future spending needs without raising taxes.

In her speech, the Chancellor said economic growth was the 'only route to the improved prosperity'. 

She also took a swipe at union barons who are already urging her to open the spending taps.

Unite union boss Sharon ­Graham urged her to scrap Labour's tight fiscal rules and pour tens of billions into Britain's 'crumbling public services'.

But Ms Reeves said she did not agree with those arguing that, now the election is won, 'the time for caution is over'.

She said her borrowing rules would remain in place, adding: 'I know that many of you aren't used to hearing this after recent years, but I believe that the promises that a party is elected on should be delivered on in government.'

Sir Tony said AI could generate annual savings of £10billion by the end of the Parliament and £35billion in a decade – but failure to embrace the technology would leave the UK 'much poorer'. 

Sir Tony also told the Guardian that Labour must be tough in tackling immigration, to avoid a further rise in 'populism'.

'Progressives should be thinking about the answers, but you've got to understand what the populist does,' he said.

'The populist usually doesn't invent a grievance, they exploit the grievance. If you want to close off their avenues for increasing support, you've got to deal with the grievance. 

'That's why Keir is absolute right in saying you've got to have controls on immigration.

'That doesn't mean to say we don't celebrate the good that immigration can do, because it does an immense amount of good for this country, but you do need to have controls.'

Sir Tony also sounded a sceptical tone on Labour's plans to hit Net Zero emissions by 2030, including doubling onshore wind and quadrupling offshore wind. 

'I'm 100 per cent in favour of Labour doing everything it can to meet its targets, so don't misunderstand me,' he said. 

'It's just one thing I think Labour should be very open about is the Tories on this, as in so many other areas, have left a complete mess.

'The gap between what they promised we would be in a position to do and where we are now is massive, and you're talking about quadrupling renewable energy … with the best will in the world its going to take some time. 

'It's not that I think Labour should give up on its ambitions. It's just it should be realistic about how tough it's going to be.'