Conservatives: Reeves hails a Taxi Tax

Rachel Reeves is running out of road. Facing a multi-billion-pound black hole in the public finances, Labour are refusing to rule out slapping 20 per cent VAT on private hire journeys. A move that could push up fares for millions of passengers and cost families hundreds of pounds a year.

In written parliamentary answers, the Treasury twice dodged questions from Richard Holden MP, Shadow Secretary of State for Transport, refusing to confirm whether a new VAT charge on private hire fares will be introduced or to assess its impact on vulnerable users. In last year's Autumn Budget, the Government already hinted at this move, acknowledging they were “considering” the introduction of VAT on private hire vehicles. That consultation has now closed, and ministers have refused to deny the policy is coming down the track.

Labour's policy would overturn the recent Supreme Court ruling which confirmed that private hire operators outside London are not responsible for drivers' VAT. At present, VAT only applies where an operator is registered and acts as the principal for the journey. Labour intends to rewrite those rules so that all local operators are treated as VAT principals, effectively extending 20 per cent VAT to fares that are currently exempt.

This measure, dubbed a “Taxi Tax”, could hit those who rely most on private hire vehicles, including people in rural areas and passengers with disabilities. Industry estimates suggest the change would raise £750 million a year and add around £2 to £3 to a typical £12 journey, costing frequent users hundreds of pounds annually.

For many communities, particularly in rural areas, private hire vehicles are not a luxury but a lifeline. A 20 per cent hike would price many out of essential journeys, devastate the night-time economy, and threaten the safety of women and girls who depend on these services to get home safely.

Local councils, already stretched to breaking point by Labour's national insurance hike, would also be forced to absorb huge new costs. Spending on home-to-school transport for children with special educational needs is projected to reach almost £2 billion next year, meaning a 20 per cent VAT hike would add £394 million to council budgets overnight, just on SEND transport expenditures.

Meanwhile, passengers are already facing higher fares across the country. Ipswich, Stafford, and Basingstoke councils have approved tariff increases ranging from 2.5 to 16 per cent this year on their licensed hackney carriages.

With growth forecasts downgraded by the OBR, OECD and Bank of England, and senior Labour figures demanding higher spending, Reeves is now searching for fresh revenue wherever she can find it. The “Taxi Tax” would be yet another stealth charge to fill the hole in Labour's dire finances.

Labour must rule out the Taxi Tax.

Richard Holden MP, Shadow Secretary of State for Transport, said:

“Labour's taxi tax would clobber vulnerable passengers and working families, while dealing a hammer blow to the night-time economy. From rural towns to city centres, people who depend on private hire to get home safely after work or a night out would be priced off the road entirely.

“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 disasterclass.

“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.”

ENDS

Notes to editors:

Labour are preparing to introduce a VAT hike on private hire taxis:

• The Department for Transport refused to say whether it will impose 20% VAT on private hire fares, hiding behind an “ongoing consultation.” HOLDEN: ‘To ask the Chancellor of the Exchequer, whether the Government plans to impose VAT at 20% on all private hire fares.' TOMLINSON: ‘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.' (Hansard, 8 September 2025, UIN 74444, link).

• The Department for Transport dodged questions on how a 20% VAT hike would affect vulnerable users. HOLDEN: ‘To ask the Chancellor of the Exchequer, with reference to her Department's consultation entitled Consultation on the VAT Treatment of Private Hire Vehicles, which closed on 8 August 2024, what assessment her Department has made of the potential impact of applying 20% VAT to private hire vehicle journeys on vulnerable users.' TOMLINSON: ‘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.' (Hansard, 8 September 2025, UIN 74446, link).

• Imposing VAT on taxi journeys would raise around £750 million. ‘Chancellor Rachel Reeves is preparing to introduce a 20 per cent VAT charge on taxi fares across the country, according to industry sources who warn the measure could generate approximately £750million yearly for government coffers' (GB News, 21 September 2025, link).

• The Government acknowledged it was considering VAT on private hire in the budget. ‘VAT treatment of private hire vehicles – The government is considering the responses to the recent consultation on the VAT treatment of private hire vehicle services, as well as the impact of the recent Court of Appeal judgment, and will respond to the consultation in due course.' (HM Treasury, Autumn Budget 2024, 30 October 2024, link).

• In July, the Supreme Court ruled private cab firms are not responsible for drivers' VAT in Uber attempt to force regional competitors to charge VAT. ‘On 29 July 2025, the Supreme Court determined that private-hire operators outside of London do not form a contractual relationship with passengers and are therefore exempt from employment taxes. This means they are also not the principal for VAT purposes. The case stems from a legal battle initiated by Uber (see history below) after the Supreme Court ruled in 2021 that its drivers were classified as workers in London, a decision that affected the company's tax and employment obligations in the UK. In 2023, Uber successfully secured a High Court declaration stating that private-hire taxi operators enter into contracts with passengers. This outcome would have made operators outside London liable for VAT at 20%. However, the Court of Appeal overturned the decision in July 2024 after challenges from private-hire firms Delta Taxis and Veezu. Uber subsequently escalated the matter to the Supreme Court.' (VATCalc, 29 July 2025, link).

• VAT only applies where an operator is registered and acts as the principal for the journey. ‘VAT is only due on the fares payable by the customers if the driver is registered for VAT. If the drivers are not registered for VAT, you must not charge VAT or issue a VAT invoice on their behalf for the customers' fares.' (HM Revenue & Customs, 19 September 2025, link).

Local Councils have been facing budget-crippling bills from use of taxis:

• Spending by councils on home to school transport for children with special educational needs and disabilities (SEND) is predicted to reach nearly £2 billion for 2025-26. ‘Research for the LGA by the Isos Partnership found total SEND transport expenditure for 2023/24 was £1,733,513,195 – up from £644,757,072 in 2015/16. However, based on survey returns, this is projected to be around £1.97 billion in 2025/26.' (Local Government Association, Council spending on SEND home to school transport soars – new LGA research, 2 July 2025, link).

• The Local Government Association has estimated that Labour's National Insurance contribution hike will cost local government £1.8 billion. The Local Government Association (LGA) responded to analysis by the Association of Directors of Adult Social Services which found National Insurance and National Living Wage increases will add an extra £1.8 billion to local councils bill for commissioning care and support. Councillor David Fothergill, social care spokesperson for the LGA,  said that ‘Councils are facing unprecedented financial challenges, with the increases to employer National Insurance Contributions likely to add significant costs for councils and the wider sector. These pressures, compounded by inflation, demography and National Living Wage rises, are putting vital services at significant risk of collapse' (Local Government Association, 27 November 2024, link).

Across the country, hackney carriage tariffs are already being increased:

• Ipswich Borough Council have increased taxi fares. ‘Ipswich Borough Council has approved a 2.55% increase in hackney carriage fares, bringing the cost of a two-mile daytime journey to £8.00 from November.' (Ipswich.co.uk, 1 October 2025, link).

• Stafford Borough Council are set to increase taxi fares. Proposals have set out a 90p increase to the current £3.10 starting rate in vehicles carrying up to four people. (BBC News, 14 July 2025, link).

• Basingstoke and Deane Borough Council increased taxi fares by up to 16 per cent. After the Cabinet of Basingstoke and Deane Borough Council approved a proposal, ‘the highest rate of change includes a 16 per cent increase for a five-mile journey'. (The Basingstoke Gazette, 8 January 2025, link).

The fiscal outlook has deteriorated, creating a black hole in the public finances and leaving Rachel Reeves under acute pressure:

• Major forecasters – including the OBR, OECD, and Bank of England – have downgraded the UK's growth forecasts, raising the prospect of another downgrade in the Autumn. This year, the OBR, OECD and the Bank of England have all downgraded the UK's growth forecasts (OBR, Economic and Fiscal Outlook, 26 March 2025, link; The Financial Times, 6 February 2025, link; MoneyWeek, 3 June 2025, link).

• Senior economists – including Andrew Bailey, governor of the Bank of England – expect productivity forecasts to also be downgraded in the Autumn. BAILEY: ‘If you were to take what I would loosely call the OBR story, I think you would more say it was a financial crisis and that [the] effect will wear off. I am a bit sceptical about that' (The Financial Times, 24 June 2025, link).

Compounding the fiscal challenge, Reeves faces rising demands from her party for higher spending – making tax rises inevitable:

• Senior Labour figures – including Andy Burnham and Louise Haigh – are piling pressure on Rachel Reeves to prioritise spending over fiscal credibility. In a thinly veiled challenge to Starmer's leadership, Burnham set out his ‘vision for Britain', including £40 billion of extra borrowing to build council houses, rejecting Reeves approach of ‘being in hock to the bond markets'. This followed calls from former Transport Secretary Louise Haigh for a ‘decisive break with the fiscal rules' to ensure the Government ‘remake Britain' (The Financial Times, 24 September 2025, link; The New Statesman, 8 September 2025, link).

• Additionally, senior Labour figures – including deputy leadership contender Lucy Powell – have joined the chorus demanding the removal of the two-child benefit cap, despite the £3.5 billion annual cost. Lucy Powell has openly called for the cap to be scrapped, echoing interventions from Rachel Maskell and Dianne Abbott among others, while Bridget Phillipson branded the policy ‘spiteful' and said removing it is ‘on the table'. On 24 September, The Times reported that Starmer will be told by the Child Poverty Taskforce that scrapping the cap is the single most effective way to reduce child poverty – despite the Resolution Foundation estimating the policy would cost £3.5 billion a year (The Times, 24 September 2025, link; BBC News, 19 September 2025, link; The Sun, 17 September 2025, link; The Resolution Foundation, Press Release, 12 May 2025, link). 

Labour voted against protecting women and girls on buses 

• Labour and Liberal Democrat peers voted against measures to prevent violence against women and girls on buses. 125 Labour peers and 43 Liberal Democrat peers voted against an amendment, tabled by Lord Moynihan (Conservative), to properly monitor assault and violence on buses, showing their complacency on violence against women and girls (Hansard, Division 3, 13 October 2025, link).

• Conservative peers previously amended the Bill to deliver measures to prevent violence against women and girls on buses. 152 Conservative peers successfully voted to amend the Bus Services (No.2) Bill to require bus operators to record all incidents of violence against on their buses, including against women and girls, showing only Conservatives are serious about reducing the rates of violent crime against women (Hansard, Division 3, 13 October 2025, link).