Chancellor Rachel Reeves says she will take “fair choices” in the Budget as economists continue to predict tax rises to try to balance the books.
Reeves is expected to give a speech to Downing Street later ahead of the 26 November Budget. Labour explicitly ruled out a rise in VAT, National Insurance or income tax in its general election manifesto.
Shadow chancellor Sir Mel Stride said with an “emergency press conference” Reeves was “all but confirming what many feared – higher taxes are on the way”. He called for the chancellor to be sacked if she “breaks her promises yet again”.
Meanwhile influential think tank the Resolution Foundation has said tax rises are now “inevitable”.
Avoiding cuts to VAT, NI or income tax “would do more harm than good”, warned the foundation which has close links to Labour – Treasury Minister Torsten Bell was previously its chief executive.
Hiking income tax would be the “best option” for raising cash, it said, but suggested it should be offset by a 2p cut to employee national insurance, which would “raise £6 billion overall while protecting most workers from this tax rise”.
Extending the freeze in personal tax thresholds for two more years beyond April 2028 would also raise £7.5 billion, its Autumn Budget 2025 preview suggested.
The chancellor is expected to say in a speech on Tuesday morning that the Budget will focus on “fairness and opportunity” to bring down NHS waiting lists, the national debt and the cost of living.
“You will all have heard a lot of speculation about the choices I will make,” she is expected to say.
“I understand that – these are important choices that will shape our economy for years to come.
“But it is important that people understand the circumstances we are facing, the principles guiding my choices – and why I believe they will be the right choices for the country.”
The message from Reeves is expected to echo comments made by Prime Minister Sir Keir Starmer to a group of Labour MPs on Monday night.
He told those gathered that the Budget would be “a Labour Budget built on Labour values” and that the government would “make the tough but fair decisions to renew our country and build it for the long term”.
The government’s official forecaster, the Office for Budget Responsibility (OBR) is widely expected to downgrade its productivity forecasts for the UK at the end of the month. This could add as much as £20 billion to the Chancellor’s costs if she is to meet her self-imposed “non-negotiable” rules for government finances.
The two main rules are:
The Treasury declined to comment on “speculation” ahead of the OBR’s final forecast, which will be published on 26 November alongside the Budget.
However last week, the chancellor confirmed both tax rises and spending cuts are options as she aims to give herself “sufficient headroom” against future economic shocks.
The Resolution Foundation said changes in the economic outlook and policy U-turns are likely to reduce the current £9.9 billion of headroom against the chancellor’s borrowing rule into a fiscal black hole of around £4 billion.
It urged Reeves to double the level of headroom she has against her fiscal rules to £20 billion. This would “send a clear message to markets that she is serious about fixing the public finances, which in turn should reduce medium-term borrowing costs and make future fiscal events less fraught,” its Budget preview said.
It comes after the Institute for Fiscal Studies (IFS) said last month there was a “strong case” to increase the headroom. It said the lack of a bigger buffer brought with it instability, and could leave the chancellor “limping from one forecast to the next”.
Source: www.bbc.com