Tax rises are “inevitable”, a leading think tank has warned hours before Rachel Reeves sets out her Budget priorities.
The chancellor will use a speech today to pave the way for sweeping tax rises expected to be announced at the end of the month,pledging to make “important choices that will shape our economy for years to come”.
In a major pre-Budget address, she will set out her three priorities for the fiscal event – cutting hospital waiting lists, the national debt and the cost of living.
The Resolution Foundation has said that there was a way to implement the “inevitable” tax rises that “boosts confidence in the economy and the public finances, while also reducing child poverty and the cost of living”.
Ms Reeves is expected to promise a Budget “led by this government’s values, of fairness and opportunity and focused squarely on the priorities of the British people”.
Acknowledging growing speculation over possible tax rises, she will argue that it is important the public understands the circumstances facing the country.
In its pre-Budget review, the Resolution Foundation have said the chancellor should aim to double her fiscal headroom in her statement to the Commons on 26 November.
This would result in the buffer against unexpected changes in economic headwinds increasing to £20bn, but the think tank acknowledged that an increase of £15bn was “perhaps” more realistic.
“This would send a clear message to markets that she is serious about fixing the public finances, which in turn should reduce medium-term borrowing costs and make future fiscal events less fraught,” the report said.
Tax-raising measures could include freezing personal thresholds, potentially raising £7.5bn if done for two years, according to the foundation, alongside “pro-growth” reforms to the tax system, targeting wealth, motoring and property taxes.
“So, although tax rises are inevitable, there is a way to do them which boosts confidence in the economy and the public finances, while also reducing child poverty and the cost of living.”
Alongside this, it said that ministers should also consider new targeted policy measures to help with the cost-of-living crisis, such as help with energy bills.
The chancellor’s address is set to come after weeks of expectation management and growing reports of planned tax rises as she scrambles to fill a black hole of up to £50bn in the public finances to balance the books and keep to her golden rule of funding day-to-day spending with tax receipts.
On Monday, a Downing Street spokesperson said she will lay out the “clear choices we face: either investment and hope or cuts and division” – seemingly a nod to the threat posed by Reform UK.
The chancellor has warned of “harsh global headwinds” battering Britain’s economy, as well as arguing that Brexit had an even bigger impact than critics predicted.
Further fuelling speculation over tax rises, Sir Keir Starmer last week declined to stand by Labour’s manifesto pledge not to raise VAT, income tax or national insurance paid by working people.
He has previously said the commitment the party made to voters before the 2024 general election “stands”, but failed to repeat that assurance in the Commons. His press secretary also avoided using the phrase.
On Monday, his spokesperson failed to clearly define “working people” when pressed on the issue, instead saying: “Working people know who they are. We are committed to making their lives better by growing the economy, boosting defence at home and driving up living standards”.
They added that working people were those “working hard across the country who do not get back what they deserve, people who have not necessarily got the savings to buy themselves out of problems.
“The government has been very clear about the choices that we face at this budget, we’re going to be honest about the scale of the challenge we face.”,
Speaking on Tuesday, the chancellor will say: “Later this month, I will deliver my second Budget as chancellor. At that Budget, I will make the choices necessary to deliver strong foundations for our economy – for this year, and years to come.
“It will be a budget led by this government’s values, of fairness and opportunity, and focused squarely on the priorities of the British people – protecting our NHS, reducing our national debt and improving the cost of living.”
She will add: “You will all have heard a lot of speculation about the choices I will make. I understand that – these are important choices that will shape our economy for years to come. But it is important that people understand the circumstances we are facing, the principles guiding my choices – and why I believe they will be the right choices for the country.”
The Office for Budget Responsibility (OBR), which handed the chancellor its latest set of projections for the economy last week, is expected to downgrade the UK’s performance on productivity at the Budget, with fears that it could represent a further £20bn gap in the public finances.
