BRITS could be slapped with a £25 billion tax bill if Labour wants to avoid austerity, leading economists have warned.
The Institute for Fiscal Studies has claimed the Chancellor will have to dig deep into taxpayers’ pockets if she wants to keep spending promises without cutting public services.
In their annual analysis, they argue even changing the debt rules won’t help, leaving the Chancellor facing what could be “the most consequential” Budget since at least 2010.
The new Labour government has already pledged in its manifesto to increase government budgets by £5bn and is spending £9bn to settle disputes with the public sector.
If Labour sticks to the spending plans set by the previous government in 2021, it would see a £17bn surplus.
But those plans are considered wildly unrealistic and would involve real term cuts to unprotected budgets.
With little support for more public spending cuts, the Chancellor could shield budgets from inflation, leaving her with a £1bn surplus.
But if she decides to maintain spending as a share of national income—which accounts for population growth—she’d face a £16bn deficit.
Adding this £16bn shortfall to the already promised £9bn in tax hikes would push the total tax increase to £25bn, driving the tax burden to a generational high.
IFS director Paul Johnson said: “The new Chancellor is committed to increasing investment spending, and to funding public services. To do so, she will need to increase taxes, or borrowing, or both.
“Taxes are at an all-time high, and she is tightly constrained by her pledges not to raise the main rates of income tax or corporation tax, or to increase National Insurance or VAT at all.
“The temptation then is to borrow more, perhaps changing the definition of debt targeted by the fiscal rules.
“But, given her pledge to balance the current budget, that would not free up additional resource for day-to-day spending and in any case is not risk-free given the dual deficits – that is, both budget deficit and current account deficit – being run by the UK.”
A Treasury spokesperson said: “It’s right to say that we have inherited a tough financial position, but we won’t let the challenges of the past define our future.
“Despite uncovering a £22 billion black hole in our public finances we are focused on making this the most pro-growth Treasury in history, built on the rock of economic stability, including robust fiscal rules that were set out in the manifesto. That is how we will fix our public services and deliver on the promise of change.”
A Treasury spokesperson said: “It’s right to say that we have inherited a tough financial position, but we won’t let the challenges of the past define our future.
“Despite uncovering a £22 billion black hole in our public finances we are focused on making this the most pro-growth Treasury in history, built on the rock of economic stability, including robust fiscal rules that were set out in the manifesto. That is how we will fix our public services and deliver on the promise of change.”
A Treasury spokesperson said: “It’s right to say that we have inherited a tough financial position, but we won’t let the challenges of the past define our future.
“Despite uncovering a £22 billion black hole in our public finances we are focused on making this the most pro-growth Treasury in history, built on the rock of economic stability, including robust fiscal rules that were set out in the manifesto. That is how we will fix our public services and deliver on the promise of change.”
A Treasury spokesperson said: “It’s right to say that we have inherited a tough financial position, but we won’t let the challenges of the past define our future.
“Despite uncovering a £22 billion black hole in our public finances we are focused on making this the most pro-growth Treasury in history, built on the rock of economic stability, including robust fiscal rules that were set out in the manifesto. That is how we will fix our public services and deliver on the promise of change.”
A Treasury spokesperson said: “It’s right to say that we have inherited a tough financial position, but we won’t let the challenges of the past define our future.
“Despite uncovering a £22 billion black hole in our public finances we are focused on making this the most pro-growth Treasury in history, built on the rock of economic stability, including robust fiscal rules that were set out in the manifesto. That is how we will fix our public services and deliver on the promise of change.”
The Sun’s Head of Consumer Tara Evans reveals the top predictions for the Autumn Statement:
Winter Fuel Payments
Chancellor Rachel Reeves has already announced that Winter Fuel Payments will be limited to those receiving pension credit and certain benefits. The benefit is worth up to £300 per year and currently is available to everyone over state pension age and those on certain benefits.
No rises to some taxes
Keir Starmer promised there would be no rises to National Insurance, Income Tax, Corporation Tax or VAT as part of Labour’s manifesto in the election race.
Inheritance Tax
It has been predicted that the Chancellor Racheal Reeves will make changes to inheritance tax rates or thresholds. One suggestion is the potential shortening of the gift period before death for tax exemptions.
Pensions
Pensions featured very high up in the King’s Speech, was this a hint at how high on the agenda it will feature in the budget? Experts say there are a number of options, including reintroducing the lifetime allowance cap. Ms Reeves has previously campaigned to reduce the tax relief that higher earners get on their pensions and to introduce a flat rate of 33% instead. Another possible option is changing the rules around pensions and inheritance tax.
Capital Gains Tax (CGT)
There is speculation that the £3,000 tax-free allowance could be scrapped or there may be an extension of CGT to other assets.
Business Rates
There are rumours of reforms to support small businesses, possibly basing rates on land value.
Fuel Duty
Possible rise in fuel duty, reversing the freeze since 2011 and impacting household costs. The Sun has backed drivers as part of its Keep It Down campaign since the start of 2011.
