CHANCELLOR Rachel Reeves is set to impose yet more misery on taxpayers, according to a new report which found that there is a £51 billion black hole in her fiscal plans.
The National Institute of Economic and Social Research (Niesr) said weaker-than-expected recent economic activity, U-turns on welfare cuts and forecast-beating borrowing mean Reeves is on track to miss one of her fiscal rules by £41.2 bn in 2029-30, which they predict will mean tax hikes.
It cautioned she faces an “impossible trilemma” of trying to meet her fiscal rules while fulfilling spending commitments and upholding a manifesto pledge not to raise taxes.
Including the need to rebuild the fiscal buffer of just under £10bn that has been wiped out, she will have to find over £5bn, according to the group.
In its latest economic outlook, Niesr said she will likely need to break her pledge not to raise taxes for working people and resort to “moderate but sustained” hikes, or cut spending, to address the shortfall.
“Substantial adjustments in the autumn budget will be needed if the Chancellor is to remain compliant with her fiscal rules,” Niesr said.
Labour have previously ruled out introducing a wealth tax, with proposals for a 2% annual tax on assets worth more than £10 million dismissed by Business Secretary Jonathan Reynolds (above) as “daft”.
Professor Stephen Millard, Niesr’s deputy director for macroeconomics, said: “Things are not looking good for the Chancellor, who will need to either raise taxes or reduce spending or both in the October Budget if she is to meet her fiscal rules.”
Niesr said if the Government moved to extend the income tax threshold beyond 2028, it would bring in around £8.2bn – far short of what is needed.
To fill the £51bn black hole would require a rise in the basic and higher rates of income tax by five percentage points, according to the group.
This would blow up one of Labour’s key election pledges by raising income tax on “working people”.
Culture Secretary Lisa Nandy, on the broadcast round for the Government as the report was published on Wednesday, dismissed calls for a wealth tax.
She told Sky News: “Chancellor has very much poured cold water on that idea, partly because many countries have tried this sort of approach, but mostly because we were elected as a government in a time when taxes on working people were at their highest rate for generations.
“We want to bring taxes down for people, we want to help support them, put money back into people’s pockets, and all the things that we’ve been doing as a government in the last 12 months have been aimed at that.”
The Chancellor has set herself two fiscal rules: the “stability rule”, which ensures that day-to-day spending is matched by tax revenues so the Government only borrows to invest, and the “investment rule”, which requires the Government to reduce net financial debt as a share of the economy.
The SNP predicted that Reeves would hit taxpayers as she scrambled to meet the self-imposed rules.
Dave Doogan, the party’s economy spokesperson, said: “These figures confirm what we already know – the Chancellor’s economic numbers are already bust, and the Labour Party are planning to hit people in the pocket in a brutal budget this autumn.
“The Labour Party promised ‘change’ – but it is now clear to Scotland that the UK's cost of living crisis will never end.”
