A £41.2 billion economic black hole: Will the Chancellor break Labour’s manifesto?
There is growing noise from economic experts who suggest that Chancellor Rachel Reeves may have to break Labour’s manifesto pledge in order to fill the UK’s economic black hole.
Rachel Reeves has the unenviable task of trying to kickstart the UK economy while also attempting to balance the Government’s books.
She is working amidst a backdrop of slow economic growth, higher borrowing, spending, and the Government’s own tight fiscal rules.
Very little has been given away as to what the Chancellor has planned for UK tax rates.
The Autumn Budget will clarify her plans, and if indeed she does go against Labour’s manifesto pledge of not increasing tax on working people.
What are economic experts suggesting?
Given the Chancellor’s difficult task, economic experts believe she may have little choice but to explore increasing taxes on UK workers.
According to the National Institute of Economic and Social Research (NIESR), the Chancellor is staring at the prospect of trying to fill a £41.2 billion financial black hole at the Autumn Budget.
This leaves Rachel Reeves with very little headroom, and other economic experts are suggesting the UK may need a bailout from the International Monetary Fund (IMF).
Given the size of the financial black hole, the deputy director of NIESR, Professor Stephen Millard, believes the Chancellor will have to consider the three big UK taxes.
Speaking about the Chancellor’s challenges in the Independent, Millard said, “Really, given the gap that we think is, she’s got to go back on her manifesto pledge, raise one of the big three taxes. I think that’s the only way she’s going to be able to generate enough money.
“Spending which is permanent needs to be financed by permanent taxation. That’s an issue. If increases in spending are expected to be temporary, they need to be financed through borrowing.”
“If you were looking to raise £40bn, it would be difficult to do that without touching any of the big taxes.”
While things remain purely speculative, there is real cause for concern, especially for UK taxpayers and businesses. It paints a picture of uncertainty, leaving them insecure in their financial position.
What tax changes have been speculated?
Given the uncertainty, unsurprisingly, speculation about tax rates has intensified ahead of the Autumn Budget.
Several new tax rates have been speculated in the media and by financial experts, including a wealth tax, a property tax, and a mansion tax. A wealth tax would be a levy on an individual’s household’s or business’s total net assets, rather than income.
A property tax would be part of a complete reform, seeing a national property tax introduced and stamp duty abolished. This reform would also see changes to Council Tax, Capital Gains Tax, and the potential of a further National Insurance Tax for landlords.
A speculated mansion tax would see basic rate taxpayers hit with an 18 per cent levy on any sale of their home, with higher-rate taxpayers facing a 24 per cent levy.
These would be potential alternative options for the Chancellor in a bid to stick to Labour’s manifesto and aid the financial situation she is trying to fix, but there is scepticism around how effective these would be if introduced in the Autumn Budget.
It remains to be seen what will happen, but we should have clarity in the near future about what the Chancellor has planned for taxes.
Speculation will continue to grow the closer we get to the Autumn Budget, but the question will remain about whether the Chancellor will stick to Labour’s manifesto of not increasing taxes on workers.
With the uncertainty, can I prepare for all eventualities?
The Autumn Budget will provide much-needed clarity on what will happen moving forward and if there are changes to taxes, such as Income Tax and National Insurance.
In the meantime, understanding your financial position and potentially preparing for some change will certainly be beneficial.
With energy costs and inflation rising alongside the potential changes in the Autumn Budget, having a sound understanding of your financial position can help you plan and budget effectively.
Finance experts provide comprehensive, tailored advice and support. They can help you understand your financial position, mitigate rising costs, and plan effectively so you are on a sound financial footing ahead of the Autumn Budget.
Plan ahead of the Autumn Budget, get in touch for expert financial advice and support.
