Rachel Reeves is facing a mounting backlash over plans to impose VAT on taxi fares, with campaigners warning the move will hammer rural residents, make it harder for disabled people to attend medical appointments, and heap pressure on the NHS budget.
The chancellor is weighing proposals to introduce a 20 per cent levy on all private hire vehicle journeys as part of her November Budget, which is expected to include sweeping tax rises to plug a £50bn black hole in the public finances.
Rural residents in the firing line
Critics have argued that the measure would disproportionately affect people living outside major cities, where public transport links are patchy and taxis are often the only way to get around.
Michael Solomon Williams, from the Campaign for Better Transport, told the Telegraph: “Taxis and private hire vehicles are an important part of an integrated transport mix, especially for people who live in rural areas, can’t drive or need accessible door-to-door travel.”
“The focus should be on making public transport more affordable and accessible – not taxing the services that fill its gaps, hiking prices and undermining connectivity”.
Cab firms outside of London are exempt from VAT because most drivers operate as self-employed contractors and do not reach the £90,000 earnings threshold at which VAT becomes payable.
Campaigners fear Reeves’s “taxi tax” would pile costs onto passengers and breach Labour’s manifesto pledge not to raise VAT.
The Stop the Taxi Tax campaign said: “The Taxi Tax breaches Labour’s manifesto promise not to raise VAT. Not only that, it will hit those living in rural communities especially hard, who lack reliable and accessible public transport. We urge the Chancellor to stick to her promise, stop the Taxi Tax and avoid dealing another blow to people in rural and isolated communities”.
NHS burden and political risks
The NHS currently spends £460m a year on taxis and private hire vehicles to transport patients to non-urgent medical appointments.
Industry groups say a 20 per cent VAT hike would stretch health budgets further.
Polling commissioned by Stop the Taxi Tax found seven in 10 voters opposed to the move.
Among rural respondents, nearly six in 10 said they would cut their use of taxis if fares rose, while half said they would find a 20 per cent rise unaffordable.
Treasury minister Dan Tomlinson acknowledged the sensitivity of the issue earlier this month, saying: “the government continues to take this complex issue very seriously and recognises businesses’ need for certainty”.
“The government is carefully considering the wide range of views shared through last year’s consultation on the VAT treatment of private hire vehicles and will publish a detailed response soon”.
The Chancellor will set out her decision on 26 November. Until then, taxi operators and passengers alike are bracing for a hit.