Tensions are mounting between the Treasury and the Office of Budget Responsibility (OBR) ahead of the Autumn budget. Whilst precise details about the budget remain unclear, it is widely expected that a range of tax hikes will be announced to allow the Treasury to balance the nation’s finances.
The extent to which taxes are increased will depend heavily on forecasts by the OBR, determining how much of a black hole Rachel Reeves will have to fill. According to economists, the figure the Chancellor is required to find could be as high as £30 billion. After announcing last year’s budget, which also included significant rises to things such as National Insurance and inheritance tax, Reeves declared that she “would not be returning for more taxes” in the coming years.
A budget ladened with tax increases could therefore have a serious impact on her and the government more generally.
According to the Times, Reeves is now lobbying the OBR to include growth measures such as the EU mobility deal and trade deals in its forecasts to reduce the amount she needs to raise.
There is also growing frustration at the way the forecast is developed and delivered, with some ministers furious with the timing of a productivity review which will lead to a significant downgrade in forecasts.
Paul Johnson, the former head of the Institute for Fiscal Studies, told the Times that any attempt by the Government to introduce a series of smaller tax rises would do significant economic harm, with bigger, politically unpalatable tax hikes likely to have greater impact.
Rachel Reeves hinted at tax rises in the Budget but insisted Labour’s manifesto commitment “stands” on VAT rules as she unveiled plans to guarantee work for long-term unemployed youth.
The Chancellor said earlier this week that the “world has changed” since last year when she told business chiefs the Government would not be coming back for “more taxes” after raising around £40 billion.
Speaking to broadcasters from Labour’s annual conference, Ms Reeves warned the UK was not “immune” to increased global borrowing and
tougher trade barriers stemming from US tariffs.
She acknowledged there was “more to do” but said she was “proud” of the Government’s economic record a year into office, pointing to its most recent pledge to guarantee work for long-term unemployed young people.
The Chancellor used her Labour Party conference speech to insist that she would keep control of the public finances and would “not take risks with the trust placed in us by the British people”.
But she acknowledged that her choices had been made “harder” by international events and the “long-term damage” done to the economy.