Budget situation is ‘desperate’, Reeves warned as experts say she has no choice but to raise big taxes
Rachel Reeves has been warned by some of the country’s leading economists that she has no choice but to raise massive taxes and other reforms in the Budget if she wants to reverse Britain’s “desperate” economic situation.
The Chancellor faces a black hole of up to £50bn in the government’s finances and is expected to raise taxes next month, but has been warned he cannot afford to fix margins by “picking from a Scrabble bag” with smaller tax increases.
Leading tax expert Dan Neidle, founder of Tax Policy Associates, said the “smart” way for Ms Reeves to raise taxes would be to “increase one of the main taxes, probably by expanding the VAT base”; This may or may not break the manifesto commitment.
“The less smart way to do this,” he warned, “is to pick from a Scrabble bag full of lots of small tax increases.”
Economists have repeatedly warned Ms Reeves in recent months that Labour’s combination of U-turns, high debt and slow economic growth meant she would have to raise taxes or scrap flagship borrowing rules.
But last month it suffered another blow when the official Budget watchdog decided to downgrade a key economic performance indicator; This move could also lead to tax increases.
Mr Neidle also called for reform of the tax system, warning the situation had become “quite hopeless” when giving evidence to the House of Commons Treasury committee.
He highlighted the £90,000 cliff edge on which small businesses pay VAT and warned that this was stopping many people from expanding because they would face immediate penalties if they expanded and made more money.
Ruth Curtice of the Resolution Foundation told MPs Ms Reeves “must increase taxes in this Budget”.
The call came just hours after Ms Reeves received more dire economic news, with unemployment reaching its highest level in more than four years.
The Office for National Statistics said the unemployment rate rose unexpectedly to 4.8 per cent in the three months to August, from 4.7 per cent in the previous three months, the highest level since March-January 2021, at the height of the epidemic.
Commenting on the rising employment rate, shadow business secretary Andrew Griffith said: “Rising unemployment is a disaster for the economy and a tragedy for the families affected. The growing crisis as young people fail to find work is a prime example of how Labor is taking our country in the wrong direction.”
“Beggars believe the government is making things worse with ‘back to the 70s’ employment legislation that every business group opposes.”
