Britain could be hit with new tax rises in an autumn Budget as the new Government faces up to the reality of the nation’s dire public finances, leading economists are warning.
Chancellor Rachel Reeves is set to reveal details on Monday of an audit of the UK’s public finances which could tell of a blackhole of some £20 billion between revenues and funding commitments, including in areas such as asylum and public sector pay.
Before the July 4 election, the Institute for Fiscal Studies accused the political parties of a “conspiracy of silence” over the state of the public finances and difficult choices ahead.
“Now they are reckoning with reality,” Ben Zaranko, senior research economist at the IFS, told The Standard.
“This was entirely predictable and predicted.”
He added: “We may see some short-term remedial measures which may well include some tax rises above and beyond those included in the (Labour) manifesto.”
The tax burden on Britain is already due to continue rising due to the stealth taxes from the freezing of the thresholds for paying levies including income tax.
Millions more people will have been dragged into paying income tax and the higher rate during the six-year-freeze which is due to run until 2027/28.
The Chancellor may get more room to borrow if the UK’s growth forecasts are upgraded, as expected, if there is a period of stable government after the turmoil under the Tories.
But many of the Government’s reforms, such as on planning and house-building, will take time to impact growth.
If Ms Reeves does opt for tax rises they are likely to be targeted at the wealthy, with suggestions that changes could be made to inheritance tax or capital gains tax.
She has ruled out increasing VAT, income tax or National Insurance.
Taxes on the rich could hit London disproportinately hard, given the greater wealth but also higher cost of living in the capital.
Health Secretary Wes Streeting, on the media round for the Government, said it would not “duck difficult decisions” in the Budget, accusing the Tories of concealing the true scale of the public finance woes.
“What I think we have found shocking is the state of the public finances in the year,” he told Times Radio.
Asked about the blackhole at a meeting of G20 finance ministers in Brazil, Ms Reeves said: “I’ll give a statement to Parliament on Monday, but I have always been honest about the scale of the challenge we face as an incoming Government, and let me be crystal clear: we will fix the mess we have inherited.”
The Chancellor was expected to confirm the plans of her Tory predecessor Jeremy Hunt would require significant cuts to some already cash-strapped public services.
But Tory MP Neil O’Brien accused the new Government of being “utterly dishonest”, tweeting: “Spending settlements for departments were all known from countless OBR / IFS reports.”
