Rachel Reeves is running out of road.
With a multi-billion-pound hole in the public finances, Labour are refusing to rule out slapping 20 per cent VAT on private-hire journeys - a move that could drive up fares for millions of passengers and cost families hundreds of pounds each year.
In written parliamentary answers, the Treasury twice ducked questions from Shadow Transport Secretary Richard Holden MP, refusing to confirm whether it plans to impose VAT on private-hire fares or to assess the impact on vulnerable users. Last year’s Autumn Budget already hinted at the policy, acknowledging ministers were “considering” introducing VAT on private-hire vehicles. That consultation has now closed, and ministers will not deny the change is coming.
Labour’s proposal would overturn a recent Supreme Court ruling confirming that private-hire operators outside London are not responsible for drivers’ VAT. At present, VAT applies only where an operator is registered and acts as the principal for a journey. Labour intends to rewrite those rules so every local operator is treated as a VAT principal, effectively extending the 20 per cent rate to fares that are currently exempt.
Dubbed the “Taxi Tax”, this measure would hit those who rely most on private-hire services - people in rural areas such as North West Essex and passengers with disabilities. Industry estimates suggest it would raise £750 million a year and add around £2–£3 to a typical £12 journey, costing regular users hundreds annually.
For many communities, especially in rural areas like North West Essex, private-hire vehicles are a lifeline, not a luxury. A 20 per cent hike would price people out of essential travel, damage the night-time economy, and undermine the safety of women and girls who depend on these services to get home safely.
Local councils, already stretched by Labour’s National Insurance rise, would also face huge new costs. Spending on home-to-school transport for children with special educational needs is forecast to reach almost £2 billion next year. A 20 per cent VAT charge would add £394 million overnight, just on SEND transport.
With the OBR, OECD, and Bank of England all downgrading growth forecasts, and senior Labour figures demanding higher spending, Rachel Reeves is searching for revenue wherever she can find it. The “Taxi Tax” would be another stealth charge to fill the black hole in Labour’s finances.
Labour must rule out the Taxi Tax.
Commenting, Richard Holden MP, Shadow Secretary of State for Transport, said:
“Labour refuse to rule this out for a reason because they’re planning it. They’re in this position because Keir Starmer has no backbone, a weak team around him, and no plan. Combined with Rachel Reeves’ multi-billion-pound black hole in the public finances, it means yet another stealth tax to paper over their economic disaster class.
“Rachel Reeves has driven the economy into a multi-billion-pound black hole, and now she’s coming for commuters and cab users to fill it. The meter’s running, the bill’s rising, and Labour’s driving Britain in the wrong direction. Labour must slam the breaks and rule the Taxi Tax out now.”
Commenting, Mrs Badenoch MP said:
“In North West Essex, people rely on taxis and private-hire cars to get to work, school, hospital appointments and nights out - especially in villages where there’s limited or no regular bus or train service. Labour’s ‘Taxi Tax’ would hit those people hardest, pushing up fares and forcing councils to spend even more on essential transport for children with special needs.
“It’s yet another example of Labour turning to tax rises because they can’t control spending. Instead of punishing families for Labour’s fiscal failures, ministers should focus on supporting local drivers and keeping vital transport affordable for everyone.”
