‘Unpalatable tax rises’ on the way
TAX rises are “likely” on the way as Rishi Sunak tries to find ways to fill a £40 billion fiscal “black hole” in the wake of his predecessor’s ill-fated economic plans, according to a think tank analysis.
A report published today by the Resolution Foundation suggests that Mr Sunak, alongside Chancellor Jeremy Hunt, faces an “unpalatable menu” when it comes to rebalancing the nation’s finances.
With a deteriorating economic outlook and the legacy of Liz Truss’s disastrous mini-budget as a backdrop, the think-tank suggests that the Government will need to find at least £40 billion - likely through a combination of tax rises and spending cuts.
Mr Sunak and Mr Hunt are currently considering how to tackle the gloomy economic forecast, ahead of the Autumn Statement on November 17.
The think tank warns that the Office for Budget Responsibility could predict a recession next year, with GDP forecasts cut by up
to 4% by the end of 2024.
Unemployment could also rise by around half a million, it suggests, with the weaker economic outlook bringing borrowing up by around £20 billion a year by 2026-2027.
“The Government has a little over two weeks to finalise its plans to repair its economic credibility and sustainability of the public finances,” said James Smith, research director at the Resolution Foundation.
“While the recent focus has been on conditions improving post-trussonomics, the central picture remains one of a weaker growth, higher borrowing costs and expensive tax cuts that have left a fiscal hole of at least £40 billion to fill.”
Among the “menu” of options open to the Chancellor includes cuts to investment spending, a move that the Resolution Foundation warns that could save £10 billion but also have a detrimental impact on growth.
The Resolution Foundation study suggests that the new administration could save £9 billion by choosing not to raise benefits and pensions in line with rising prices next year. It warns that any such move would have a “huge” impact on those struggling with a low-income working family with two children losing around £750 and a pensioner £342.
One option open to the new Prime Minister and Chancellor would be to “go full circle” on the mini-budget by re-instating the health and social care levy - a move that would raise £15 billion by 2026-27.