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Rachel Reeves has handed herself a surplus after dire news on a key economic indicator comes as top economists warn that raising income taxes or cutting public spending is the only way Rachel Reeves can balance her budget. £20 billion was already a big black hole,
The Chancellor knew he faced a tough budget on 26 November, with a gap in finances of between £30bn and £40bn, but they have been dealt a further blow by the decision by the Office for Budget Responsibility (OBR) to reduce its productivity forecast – a move which was the first revealed by Independent – which means it will have to find an extra £20bn.
Now the prestigious Institute for Fiscal Studies (IFS) has warned that attempts are being made to balance the balance sheet by increasing the balance sheet. lots of small taxesBreaking Labour’s manifesto pledge not to increase income tax would instead “cause an unnecessary amount of economic damage”.
This happened when the Chancellor said that she also wants to increase it fiscal headroom The amount was reduced from the current £10 billion to allow the Treasury to deal with economic shocks after last year’s budget, following Donald Trump’s tariffs and the ongoing impact of the wars in Ukraine and the Middle East.
Isaac Delestre, senior researcher at IFS, said: “It is possible to raise tens of billions without breaking the letter.” Labor manifesto promise Do not increase employee national insurance contributions [Nics]VAT or income tax rates. But this increases the risk of raising taxes in a way that would cause unnecessary economic damage, or add unnecessary complexity to the system.
“Of course, they always have the option of reducing spending rather than increasing taxes,” he said.
His comments come as Ms Reeves discusses potential new taxes, with several options available to her, including an annual mansion tax 1 per cent on assets worth more than £2m, a gambling tax, a bank profits levy, capital gains reforms for those selling their primary asset, and ending tax relief on pensions.
But the man she brought in as her economic guru before Labor came to power has warned the Chancellor she must take a bolder approach.
Former Treasury minister Jim O’Neill, a crossbench peer and former head of Goldman Sachs, urged Ms Reeves to introduce “proper reform”, saying she should “get rid of the triple-lock guarantee on state pension annual increases, bring in real property tax reform, and start getting serious about welfare reform”.
Professor Stephen Millard, deputy director of macroeconomic modeling and forecasting at the National Institute of Economic and Social Research (NIESR), agreed that Ms Reeves would now have to turn to one of the bigger taxes – perhaps income tax – to plug the hole.
he told Independent: “Trying to fill the gap without making any core tax changes would mean lots of small changes, making the tax system more complex and less efficient.”
The Chancellor has already confirmed she will not borrow any more money to balance the books, but she is under increasing pressure from within the Labor Party to increase spending rather than cut it, with former Prime Minister Gordon Brown set to lead a push to scrap the two-child benefit cap next week.
He and other ministers have also repeatedly avoided mentioning the Labor election manifesto pledge that they would not raise income tax, VAT or employee nicks. This led to speculation that he was Plan to increase income taxwith Independent disclosure of that serious Top 45p rate discussed And there is a possibility of either raising it or lowering the threshold at which people have to start paying it.
While some argue that Ms Reeves needs to consider a new effort to reduce the rising benefits bill, further welfare reform and spending cuts appear unlikely after a Labor backbench rebellion at the beginning of the summer.
It comes after the Labor membership elected Lucy Powell as the party’s deputy leader on a left-wing ticket, in which she promised a “fair” tax system and opposition to spending cuts. He was previously sacked as a cabinet minister by Sir Keir Starmer for arguing against his planned £5 billion welfare cuts.
Meanwhile, Ms Reeves has doubled down on her claims that Brexit is to blame for the country’s economic problems, as she was pushed over the latest OBR downgrade news during a visit to Saudi Arabia this morning.
“There are clearly big benefits from rebuilding some of those relationships, but inflation is also very high,” he said at the Future Investment Initiative in Riyadh. “One reason for this is that there are very high costs associated with trading with our nearest neighbors and trading partners.”
On Monday, Ms Reeves indicated a tax increase was being considered ahead of the Budget, as the government needed to ensure there was “enough scope” in its spending plans, and that its fiscal rules were met.
“The foundation of economic growth is stability and I’m not going to break the fiscal rules we’ve set,” she said.
Meanwhile, the Chancellor hopes investment in Britain will help the economy as well as his fortunes, as he announces a £6.4bn two-way trade and investment deal with Saudi Arabia. The new package includes £5 billion of export finance to boost British manufacturing and jobs, as well as multimillion-pound investment deals with Aberdeen Investcorp, Barclays, HSBC and UK AI powerhouse Quantexa.
He said: “The commitments revealed today will boost business opportunities and create thousands of jobs at home – key ingredients to driving economic growth and building an economy that works for and rewards working people.”