Chancellor Rachel Reeves has revealed the government is considering making tax hikes at this year’s Budget, the first time she has made the admission in public.
In an interview with Sky News, Reeves admitted that the government was considering raising tax and cutting spending to fill a fiscal hole.
The Chancellor said she would “always make sure that the numbers add up” as she pointed to expected productivity downgrades by the Office for Budget Responsibility (OBR) for contributing to a fiscal hole in the public finances.
“The Office of Budget Responsibility, who provide the independent forecasts for the government, have done a review over this summer looking at the supply side of this economy,” Reeves said.
“Now that sounds quite technical but it has big implications for the projections for growth and therefore the projections of public finances, because our public finances depend on tax revenues coming in to fund things and they have consistently overestimated our productivity performance.
“Austerity, Brexit, and the ongoing impact of Liz Truss’s mini-budget – all of those things have weighed heavily on the UK economy.
Reeves claimed the government were “undoing” damage left by the Brexit deal through agreeing a trade deal on food standards, energy trading and creating an “ambitious youth mobility scheme”.
The government also believes separate trade deals with the US and India would also help boost productivity in the UK.
But when she was asked whether productivity downgrades would lead to tax hikes at the Budget, Reeves admitted that she would not “duck” decisions to keep public finances on stable footing.
“I was really clear during the general election campaign and we discussed this many times that I would always make sure that the numbers add up.
“Of course, we’re looking at tax and spending as well, but the numbers will always add up with me as Chancellor. We saw just three years ago, what happens when a government, where the Conservatives lost control of the public finances, inflation and interest rates went through the roof?”
Rachel Reeves prompts furious response
Reeves has previously said that “harder” decisions were set to be made at this year’s Budget but the admission of incoming tax hikes has prompted a furious response from the opposition.
Shadow Chancellor Mel Stride said: “Rachel Reeves doesn’t need to raise taxes. She needs to get a grip of government spending – including the welfare bill.
“Be in no doubt, this tax doom loop is down to the Chancellor’s economic mismanagement.
“Under Rachel Reeves we have seen inflation double, debt balloon, borrowing costs at a 27-year high, and taxes up – with more pain on the way in the autumn.”
Forecasts by independent think tanks and City economists have varied but the fiscal hole at this year’s Budget could be worth between £20bn and £30bn.
The National Institute of Economic and Social Research (NIESR) has suggested that the shortfall in Reeves’ £9.9bn headroom could be worth £50bn.
The fiscal hole is likely to be made up of higher borrowing costs, U-turns on welfare savings and productivity downgrades.
A range of other Labour policies including the Employment Rights Bill and cutting net migration could also weigh down on growth forecasts.
The Treasury is hoping that planning reforms and slashing red tape in the City could stop drastic cuts to forecasts being made at the Budget.