CashNews.co
Rachel Reeves may need to raise up to £25bn from tax increases if she wants to keep public spending rising with national income, the Institute for Fiscal Studies (IFS) estimates.
Even if the chancellor changes the debt rule she inherited from the Tories, this would do “almost nothing” to ease the challenge on public service funding, the IFS said as it released its Green Budget report.
The thinktank said:
“Given the pledges she has made not to raise the main rates of income tax and corporation tax, or to increase national insurance or VAT at all, she might struggle to implement a tax rise on that scale.
“It would be bigger than the net tax rises implemented in July 1997 and October 2010 (both around £13bn-£14bn). In which case she might have to live with day-to-day spending on many public services falling as a fraction of national income.”
The report, funded by the Nuffield Foundation and using economic forecasting by Citi, analysed the challenges facing the Chancellor.
IFS director Paul Johnson said Ms Reeves’ first Budget, which she will deliver on 30 October, could be “the most consequential since at least 2010”.
In a scenario modelled by Citi, the report concluded that if there are no cuts to spending outside of public services, Ms Reeves would need a tax rise of £16 billion to remain on course to balance the budget in 2028-29.
This would be on top of the £9 billion tax rise from measures set out in Labour’s manifesto – adding up to almost £25 billion in total.
But the party’s pledges not to raise income tax and corporation tax or to increase National Insurance or VAT mean she may struggle to implement a tax rise on that scale.
It would be bigger than the net tax rises from July 1997 and October 2010, which were both around £13-£14 billion.