Chancellor Rachel Reeves has been handed a rare reprieve ahead of the Budget after a data error by the UK’s statistics authority reduced expected public borrowing by £3bn.
A mistake in the counting of value added tax receipts was identified in an update by the Office for National Statistics (ONS).
Correcting for the error reduces public sector net borrowing by between £200m and £500m per month within the period affected, resulting in a reduction in borrowing of £1bn for the financial year ending March 2025 and a reduction of £2bn for the financial year to date, the ONS said.
The borrowing overstatement will be welcome news to the Chancellor, as she scrambles to raise taxes by as much as £30bn at next month’s Budget in a bid to stick within her fiscal rules.
More taxes on the way
A fleet of different tax raises are on the cards, including bank taxes, further National Insurance contributions (NICs) changes and a raid on pensions as businesses brace for another hike in costs.
As much as £5bn could also be raised from changing the tax treatment of pensions, including by setting a uniform 30 per cent rate for tax relief on pensions contributions and cutting the tax-free lump-sum on pension ceiling to £100,000, according to an analysis by Oxford Economics.
Reeves is also expected to extend the freeze on income tax allowances and NICs thresholds to the 2029/30 tax year, dragging millions more employees into paying higher rates of tax and raising an extra £10bn, Oxford Economics said.
NIC rules could also be extended to cover Limited Liability Partnerships such as law firms and investment funds, who currently don’t pay the tax, raising £1bn.
“We regard a freeze in income tax allowances and NICs thresholds a near certainty,” said Michael Saunders, senior advisor at Oxford Economics.
“[But] in our view, it’s highly unlikely that the Chancellor will lift the main rates of income tax, VAT, employees’ NICs or corporation tax, given Labour’s manifesto commitments.”
Other tax rises on the menu include “sin taxes” such as a rise in alcohol duty.
The Institute for Public Policy Research, a left-leaning think tank with close ties to the government, has called on the chancellor to hike taxes on alcohol, pinning the blame for the UK’s longstanding productivity woes on work-related drinking.
The group called for action on the “cheapest, strongest drinks which cause the most harm” by introducing a minimum unit price to be set on alcohol, as well as an annual increase on alcohol duty by an above-inflation rate.