Chancellor Rachel Reeves said ‘of course, we’re looking at tax and spending’ as she scrambles to plug a black hole in the public finances estimated to be at around £50billion
Rachel Reeves has admitted she’s looking at tax rises and spending cuts in her clearest hint yet about her Budget plans.
The Chancellor said “of course, we’re looking at tax and spending” as she scrambles to plug a black hole in the public finances estimated to be at around £50billion.
Speaking ahead of her November 26 statement, she said “challenges are being thrown our way” and confirmed the budget watchdog had “consistently overestimated” the UK’s productivity. She blamed the lingering impact of Brexit as well as conflicts around the world and Donald Trump’s trade tariffs for the poor state of the economy.
It comes as she yesterday received the news that households in the UK will suffer the highest inflation of any of the world’s seven biggest economies this year and next, according to predictions by the International Monetary Fund. In better news, the IMF also said Britain is set to be the second fastest growing G7 country this year, with only the US growing faster.
READ MORE: Brits will suffer highest inflation of the world’s biggest economies, IMF warns
Asked if tax rises are on the way, Ms Reeves told Sky News this morning: “Well, I was really clear during the General Election campaign and we discussed this many times that I would always make sure that the numbers add up.
“And of course, challenges are being thrown our way, whether that is the geopolitical uncertainties, the conflicts around the world, the increased tariffs and barriers to trade and now this review looking at how productive our economy has been in the past and then projecting that forward. But I won’t duck those challenges.
“Of course, we’re looking at tax and spending as well, but the numbers will always add up with me as Chancellor because we saw just three years ago, what happens when a government, where the Conservatives lost control of the public finances, inflation and interest rates went through the roof.”
Ms Reeves, who will attend the annual meetings of the IMF in Washington DC today, was also asked whether she could promise the British public that the Government was not going to get “stuck in a doom loop” of having to raise taxes each year to fill a black hole in spending. She said: “Nobody wants that cycle to end more than I do.
“That’s why we’re putting all the effort into growing our economy because that in the end is what brings in the tax revenues to be able to afford to keep taxes low and to invest in our public services.”
She said the Office for Budget Responsibility (OBR) had carried out a review over the summer and found “they have consistently overestimated our productivity performance”.
It was up to them to set out the reasons, she said, but “austerity, Brexit, and the ongoing impact of Liz Truss’s mini-budget, all of those things have weighed heavily on the UK economy”.
“Already, people thought that the UK economy would be 4% smaller because of Brexit,” she said. “Now, of course, we are undoing some of that damage by the deal that we did with the EU earlier this year on food and farming, goods moving between us and the continent, on energy and electricity trading, on an ambitious youth mobility scheme.
“But there is no doubting that the impact of Brexit is severe and long lasting and that’s why we are trying to do trade deals around the world, US, India, but most importantly with the EU so that our exporters here in Britain have a chance to sell things made here all around the world.”
Treasury minister James Murray this morning said it was “normal” that a Budget would look at tax and spending measures. He refused to speculate on the details of the Budget, but told the BBC: “We know that people need real help now and we’re doing everything we can to help people with the cost of living as they face it immediately.
“But in the medium term and beyond, what we know we need – and I know it’s frustrating in a way for viewers to hear this because it takes time to come through – but we have to take the right long-term decisions for the country. We have to invest in what our country needs.
“We have to invest in the infrastructure. We have to get jobs in every part of the country, so not just jobs in London and the Southeast, but jobs in every region and nation of the UK, getting that economic growth, getting that infrastructure investment in every part of Britain.”
The National Institute of Economic and Social Research (Niesr) has suggested Ms Reeves will need to find around £50billion a year by 2029-39 to meet her goal of balancing day-to-day spending with tax revenues while maintaining “headroom” of around £10billion against that target.
According to the Financial Times, Ms Reeves is looking to overhaul tax-free ISAs as part of her Budget plans. She is reportedly looking at lowering the tax-free limit for cash ISAs to encourage people to invest more of their money in British stocks.
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