Experts told the Treasury Committee that Chancellor Rachel Reeves may have to hike major taxes in next month’s Budget to plug the black hole in the public finances
Rachel Reeves must avoid a hitting Brits with a “Scrabble bag” of tax rises, MPs have heard.
Experts told the Treasury Committee that the Chancellor may have to hike major taxes in the Budget to plug the black hole in the public finances.
Ms Reeves is battling to balance the books following Government U-turns on winter fuel and disability benefit cuts, while grappling with sluggish growth, rising borrowing costs and persistent inflation.
Last month, she dropped a massive hint that taxes could go up when she refused to repeat her pledge that she won’t be “coming back for more tax”. Ms Reeves raised taxes by more than £40billion last year to pour tens of billions of pounds into public services.
Labour’s manifesto promises to protect working people from hikes to National Insurance, VAT and income tax. But Ms Reeves faces a nightmare choice between tax hikes and spending cuts as she remains committed to her strict rules which prevent borrowing for day-to-day spending.
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Tax expert Dan Neidle said she had to raise taxes in one of two ways. He said the “wise” way would be “raising one of the main taxes, possibly by expanding the base of VAT, which may or may not breach a manifesto pledge”. He added: “The less wise way to do it is by picking from a Scrabble bag of lots of little individual tax rises.”
Mr Neidle said the tax system had become a mess of anomalies and political compromises over the last 30 years. “Every time you create 10 small tax rises or tax changes, you’re adding to that layer that have ossified our tax system. I very much hope she won’t do that,” he said.
Mr Neidle said the tax system needed to become more pro-growth. “I think it’s become quite desperate,” he added,
Ruth Curtice, Chief Executive of the Resolution Foundation, said: “Looking at things in the round, she should raise taxes at this Budget. When you look at the cost of borrowing for the UK relative to other countries, it’s one of the highest of rich countries [so] there is a strong case for raising taxes at this Budget.”
She added: “We should think about how the distribution of the pain of tax rises fits with the fact that we have only just emerged – barely emerged – from a cost of living crisis, so we should think carefully about the winners and losers.”
The Resolution Foundation, which focuses on low to middle income households, has called for a reduction in employee national insurance and increases to capital gains tax. Helen Miller, Director of the Institute for Fiscal Studies (IFS), said: “You could scrape £20-30billion without touching those big taxes. “The question is not could you, but should you?”
She added: “Tax rises are not all born equal. Some are much more damaging than others to things we care about like welfare or growth.”
The Chancellor told a Cabinet meeting that the cost of living was the biggest challenge for ordinary people and inflation remained too high. She said the Government would bear down on inflation, control public spending, and prioritise growth, according to a Downing Street readout.
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