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Trimming around the edges in the next section Budget A leading think tank has warned that we risk another year of economic pain. chancellor To take “adventure action” in November.
Institute of Fiscal Studies ,Indian Foreign Service) said it expects Rachel Reeves will need To receive at least £22 billion next month, due to rising borrowing costs, weak growth forecasts and spending commitments made since the spring.
But the IFS said there was a “strong case” for chancellor To proceed further, arguing that the £10 billion buffer – the amount Ms Reeves had previously left for herself against self-imposed debt rules – was not enough to ensure sustainability and would leave her “limited from one forecast to the next”. The think tank said the funding would likely come from tax increases.
While the think tank did not deny cut expenses Overall, he said they would “pose challenges” due to the lack of parliamentary support for welfare cuts and the fact that the departmental budget was only agreed in June.
Speaking about the narrow scope, the Chancellor finally gave up BudgetIFS economist Ben Zaranko said: “The reason this creates so many problems is that when you have a pass-fail rule, and you leave such a narrow margin against it, even fairly standard, typical forecast movements can be enough to push you on the wrong side of the line.
“That means policy has to respond again and again… and that instability creates harm.”
The £22 billion figure also does not include the cost of the widely expected announcements on scrapping the two-child benefit cap and maintaining the cap on fuel duty.
IFS director Helen Miller said that the current situation, where the Chancellor is likely to be forced to make major spending cuts or tax increases, is “largely” of his own making, having chosen to “operate his fiscal rules with so little headroom” after he faced “run-of-the-mill forecast changes”.
“For Rachel Reeves“The Budget will feel like an unprecedented day,” Ms Miller said.
The IFS said implementing major fiscal consolidation in November would be the “most direct route” to avoiding similar challenges in future years.
But tax increases aren’t simple either, Labour’s manifesto rejects an increase income taxNational Insurance or VAT.
Ms Miller suggested that changes to property taxes and levies such as capital gains tax or inheritance tax would make it possible to raise the needed funds, but said these were “poorly designed” and could harm growth.
The IFS also warned against demanding “large sums from a small number of taxpayers”, saying instead the Chancellor should “be bold” and reform the tax system to make it “more rational” and have less impact on economic growth.
The IFS warning comes after Dan Needle, a leading tax expert and founder of Tax Policy Associates, said the Chancellor would have no other option. raise major taxes and improve others in future Budget If she is to turn around Britain’s “desperate” economic situation, she warned she cannot afford to tinker at the margins by “picking from a Scrabble bag” of small tax rises.
He said the raise was an “intelligent” way for Ms Reeves to taxes would be “raising one of the main taxespossibly by expanding the base tubWhich may or may not break the promise of the manifesto.”
Asked on Wednesday whether the Government could still rule out increases in VAT, income tax or national insurance contributions, the Prime Minister’s official spokesman pointed to Sir Keir Starmer’s previous insistence that “the manifesto stands”. But he clearly wouldn’t rule out raising those taxes.
That same day, Ms. Reeves She admitted she was considering tax increases and spending cuts to address the fiscal crisis. Blame BrexitHe said this had a “severe and long-term” impact on the economy.
But shadow chancellor Sir Mel Stride claimed Labor “came into office without a plan”, adding: “The IFS has exposed the consequences of the chancellor’s decisions.”
“Rachel Reeves has delivered higher taxes, more borrowing and no credible path to growth – with more tax increases on the way.
He said, “Britain faces serious economic challenges, but instead of facing them head on, Rachael Reeves and Keir Starmer are besieged by their own MPs and too weak to take the tough decisions the country needs.”
The latest warnings from the IFS come alongside the publication of its annual “Green Budget”, which highlights the challenges facing the Chancellor ahead of the Budget each year.
The Green Budget also includes analysis from Barclays, which suggests unemployment could rise to 5 per cent in 2026 amid slow growth and inflation above target.
Jack Meaning, chief UK economist at Barclays, said: “With the right policy decisions, this near-term challenge can be navigated towards a more favorable medium-term outlook.
“If the Chancellor can avoid delivering an inflationary Budget, headline price rises should moderate significantly in the coming months, allowing the Bank of England to cut interest rates further and support households and businesses in driving more balanced economic growth.”