Economics think tank, the Institute for Fiscal Studies (IFS), has said that the Chancellor of the Exchequer, Rachel Reeves, may have to increase taxes by £25 billion in the Budget.
This is if she and her team are serious about improving public services. Until now, Reeves has ruled out raising income tax, VAT or National Insurance contributions, instead pledging that further taxes will fall on those with the ‘broadest shoulders’. She also moved to quash any talk of an ‘exit tax’ on tax exiles.
It is expected the Treasury will reform the fiscal rules to facilitate more borrowing for investment. The question still remains as to how the government will face the challenge of funding public sector spending and increased state investment, and whether that will demand cuts, taxes, borrowing or a combination of all three.
According to IFS forecasts, avoiding painful cuts while still funding public sector pay settlements for this year would leave the government needing to top up existing spending plans by £30 billion.
Whatever path the government takes, the IFS is anticipating that the Treasury will face significant challenges to public sector funding, as well as additional pressures on pensions and healthcare – in particular as revenue decreases from tobacco and fuel duties.
Much will invariably depend on economic growth, which the government has put at the centre of its economic strategy.
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