Tax rises are being prepared for all households in the UK as the Prime Minister and Chancellor plan to fill "eye-watering £50billion black hole" in public finances through tax increases and spending cuts. Rishi Sunak and Jeremy Hunt met on Monday, October 31, to prepare for the crucial budget on November 17.
It's reported they agreed that it was "inevitable" that all tax payers will face a higher burden in the coming years, and that the tough decisions made concluded that everyone will need to contribute more in tax. A Treasury source has been quoted as saying: "It is going to be rough.
"The truth is that everybody will need to contribute more in tax if we are to maintain public services. After borrowing hundreds of billions of pounds through Covid-19 and implementing massive energy bills support, we won't be able to fill the fiscal black hole through spending cuts alone," reports the BBC.
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The source reportedly added that both Mr Sunak and Mr Hunt are committed to protecting the most vulnerable in society during the "difficult period" ahead. The Treasury said: "Given the eyewatering size of the fiscal black hole, the PM and the chancellor agreed that tough decisions are needed on tax rises, as well as on spending."
The new Prime Minister and Chancellor agreed last week that major cuts must be made to Whitehall departments. However, this will be in addition to tax rises across the board.
A Treasury source told the Daily Telegraph that Mr Hunt is planning to fill the budgetary shortfall through a combination of 50% tax rises and 50% cuts to public spending. The Treasury said Mr Hunt and Mr Sunak "agreed on the principle that those with the broadest shoulders should be asked to bear the greatest burden", and it warned that "given the enormity of the challenge, it is inevitable that everybody would need to contribute more in tax in the years ahead"."
Mr Sunak warned the public when he entered Downing Street that a "profound economic challenge" lay ahead in the coming months. During a visit to a hospital in Croydon last week, the Prime Minister said he would act to "protect the most vulnerable" as he's making these decisions, but that the package was necessary to bring inflation under control and to limit the rise in mortgage payments, reports The Daily Mail.
He said: "The Chancellor has already said difficult decisions are going to have to be made and I'm going to sit down and work through those with him. But what I want everyone to know is that we need to do these things so that we can get our borrowing and debt back on a sustainable path.
"That's important because it means that we can get a grip of inflation if we do that. It means we can limit as best as possible the increase in interest rates, which is important. But as we do that, I want people to be reassured we will always do it with fairness at the heart, we will protect the most vulnerable and ensure that we can continue to grow the economy in the long run."
The size of the fiscal shortfall has shrunk slightly since Mr Hunt reversed most of the measures introduced by former Prime Minister Liz Truss in her September mini-budget, with the Institute for Fiscal Studies estimating that the shortfall could be as much as £62billion.
The fiscal statement has been delayed until November 17 in the hope that the economic outlook could improve. However, the Office for Budget Responsibility (OBR) may still predict a recession next year, with GDP forecasts cut by up to 4% by the end of 2024.
Other measures that have been reported to be under consideration by the government include ending the pensions triple lock and stopping benefits rising with inflation, which could save the government up to £9billion. However, it is understood that increases to the rates of income tax, National Insurance and VAT have been ruled out.
However, this means the Treasury is more likely to focus on methods like freezing income tax thresholds for another two years, which could raise as much as £5billion by moving three million workers into higher tax bands. The Resolution Foundation think tank predicted in a recent report that the government is facing many "unpalatable" options, as more people could be pushed into the higher 40% rate of tax.
It has also been reported that Mr Sunak considering freezing international aid for two years and cutting investment spending. The report also suggested that unemployment could also rise by around 500,000 people.
The Resolution Foundation think-tank has said that ministers will have to squeeze taxpayers and the public sector further due to the "deteriorating economic outlook" and the Liz Truss's abandoned growth plans.
A study by the foundation suggests that the administration could save £9billion by not raising benefits and pensions in line with rising prices next year, which could have a "huge" impact on those struggling, with a low-income working family with two children losing around £750 and a pensioner £342.
Analysts have already warned that there remains little room for further cuts to public spending, and such decisions could cause problems for Mr Sunak. Defence Secretary, Ben Wallace, has already threatened to resign if defence spending doesn't rise to 3% of GDP.
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