Rachel Reeves has been warned that Britain’s finances remain “chronically weak”, as new figures revealed she is still maxing out the country’s credit card. The Chancellor was hit with yet more bad news today as it was revealed public sector borrowing has risen to £60billion since April, nearly £7billion more than last year.
While borrowing in July was lower than expected, Ms Reeves was warned the data “does little to brighten the gloomy outlook ahead of the Budget”. July’s better-than-expected figures were helped by a record-high monthly tax take of £100billion, including £2.6billion from Labour’s hike to employers’ National Insurance Contributions. Top Tory Helen Whately warned Britons that “tax rises are inevitable”, as reports emerged that Labour is eyeing a raid on pension pots by slashing the maximum people can take out without paying tax.
Ms Whately’s prediction was backed by economist Elliott Jordan-Doak, who said Ms Reeves will have to raise taxes in October.
The Pantheon Macroeconomics specialist warned: “The litany of policy U-turns has only compounded the Government’s fiscal woes. We think the Chancellor will need to resort to ‘sin’ and ‘stealth’ tax hikes, duty increases, and a pensions tax raid in order to meet her fiscal rules if she wants to meet her pledge of keeping headline tax rates unchanged.
“The big picture remains that the public finances are in chronically weak condition.
“The Chancellor faces surging gilt yields and a likely productivity downgrade from the [Office for Budget Responsibility] in the October forecast round.”
Reaction to Thursday’s public borrowing figures, Shadow Chancellor Sir Mel Stride said: “Rachel Reeves is spending money she doesn’t have. Just like every Labour government in history, this one only knows how to tax more, spend more, and borrow more.
“Borrowing should be coming down, but under Labour it is higher than the same period last year. Starmer and Reeves are gambling with Britain’s future through a string of unfunded U-turns and a refusal to get spending under control. Tax rises in the autumn now look all but inevitable.
“Only the Conservatives, under new leadership, will take the responsible decisions needed to live within our means and bring down the national debt.”
Morgan Stanley, the US investment bank, issued a new report on Thursday suggesting Ms Reeves could be looking at a £20billion black hole at the Budget.
The bank said expectations of such a gap “don’t seem implausible to us”.
Alex Kerr, of Capital Economics, predicted Ms Reeves will be forced to raise taxes by between £17 and £27billion to remain compliant with her self-imposed fiscal rules.
He added: “Ultimately, today’s release does little to brighten the gloomy outlook ahead of the budget later this year.”
Ms Reeves was warned on Thursday that a planned tax raid on the sale of family homes could end up losing money overall.
Labour-supporting tax expert Dan Neidle argued that the rumoured tax hike, which would end Capital Gains Tax relief when selling, would “slash transactions, gum up housing chains, and could even collect less tax overall”.
He pointed out that there is good reason why no major European economy taxes the sale of houses.
Former head of the Institute for Fiscal Studies, Paul Johnson, agreed that the tax would “block up the entire housing market” as “no one would ever sell their properties”.
He added: “I just can’t believe that they’re considering it. I’m staggered that they’re flying this flag. It, to me, makes no sense.”
Darren Jones, Ms Reeves’s deputy at the Treasury, said: “Far too much taxpayer money is spent on interest payments for the longstanding national debt.
“That’s why we’re driving down government borrowing over the course of the parliament – so working people don’t have to foot the bill and we can invest in better schools, hospitals, and services for working families”.