Rachel Reeves savaged over new tax plan as businesses warn UK economy on the brink

Rachel Reeves is under fire for a new decision that many say will hurt both taxi drivers and high street businesses. She plans to apply a 20% VAT charge to all private hire taxi trips after a legal ruling. Business groups are urging her to cancel the plan, warning that it could push thousands of taxi drivers out of work and make it harder for people to visit local shops.

Several major organisations—including the Federation of Small Businesses, the Night Time Industries Association, and the British Independent Retailers Association—have written a joint letter to Reeves. They say this new “taxi tax” will lead to much higher ride prices, make transport less affordable, and drive away customers from town centres that are already struggling.

According to their letter, the extra cost could force around 25,000 taxi drivers to leave the job. This would not only cut transport options for the public but also hurt nearby restaurants, pubs, shops, and entertainment venues that rely on regular customer traffic. In the long run, they argue, it would reduce consumer spending, cut jobs, and hurt the economy.

The controversy comes after a court ruling changed how private hire services like Uber are taxed. In the past, drivers were seen as self-employed and didn’t need to charge VAT. But a court decided that the taxi companies—not the individual drivers—are the ones making contracts with passengers. That means the companies now have to pay VAT.

The government is still looking into the effects of this legal change and might take the issue to the Supreme Court in July. HM Revenue & Customs is also running a public consultation to hear opinions.

In response, the Treasury said they’re reviewing feedback and will respond soon. They pointed out that they’re helping drivers by keeping fuel duty frozen, which saves drivers an average of £59 per year, and by raising the minimum wage by up to £1,400 a year. They also said they’re working to support high street businesses by improving the planning system, offering tax breaks, and cutting unnecessary rules.