Reeves warns ministers tax rises are coming after loss of ‘low hanging fruit’
Chancellor Rachel Reeves has warned ministers that taxes will have to rise after the government U-turned on its welfare bill, despite repeated pledges not to increase the taxes of working people.
Reeves told ministers on Tuesday that raising the tens of billions pounds she needs would be a “big challenge” given her lack of options, according to The Times.
The Institute for Fiscal Studies (IFS) has warned that Reeves may need as much as £30bn to cover various U-turns, including the climbdown on welfare and winter fuel payments, as well as lower-than-expected GDP forecasts.
Economists have said Reeves’ £190bn Spending Review could open a £23bn shortfall in public finances if growth stays low.
Speculation over which tax Reeves will look to for funds is only set to increase over the summer, with current favorites an extension to the freeze on income tax bands and a cut to the current cash ISA limit.
But the scale of last-week’s climbdown may mean Reeves has to look to one of the ‘big three’ taxes: income tax, national insurance and VAT.
“I don’t really think there is [another way of doing it],” outgoing IFS boss Paul Johnson told the BBC.
“We don’t really know what kind of levels of money the chancellor will need to find but if we are looking at £30bn, which is quite plausible, I can’t see a way in which she raises that kind of money without hitting people on middle incomes as they did with the national insurance increase.”
The Chancellor continues to sidestep questions about tax increases – although her tone has significantly softened since describing the Autumn budget as a ‘one-off’ last year – only saying it would be “irresponsible” to rule out rises.
“We took the decisions last year to draw a line under unfunded commitments and economic mismanagement. So we’ll never have to do something like that again. But there are costs to what happened,” Reeves told the Guardian.