The UK should expect tax rises and spending cuts as the government seeks to fill an estimated £40bn fiscal black hole, according to a think tank.
This will include £20bn in day to day spending cuts, ushering in a “new period of austerity” alongside £10bn in investment cuts, the Resolution Foundation said this morning (November 1).
Although cuts to working-age benefits and pensions would save £9bn, the think tank said this would be “disastrous” given the cost of living crisis, so “further tax rises, not just spending cuts”, should be expected.
The UK is facing a likely recession, it said, with unemployment expected to peak above pandemic levels and rising interest rates increasing the cost of borrowing.
Although chancellor Jeremy Hunt’s “mini” Budget u-turn reversed a number of tax breaks, £17bn of tax cuts remain, and the cost of the energy price cap remains uncertain.
The government will therefore need to reduce borrowing by £40bn to hit fiscal rules, the report said, though the FT has reported that the Treasury wants a further £10bn in headroom in case the economy performs worse than expected.
Prime minister Rishi Sunak has agreed to sign off on a raft of tax raises, according to the FT, which quotes a Treasury official as saying: “It is going to be rough.”
The source added that while “those with the broadest shoulders should be asked to bear the greatest burden”, everybody’s taxes would go up.
Tax rises that have been touted include an extension on the freeze in personal tax allowances.
When he was chancellor, Sunak announced a number of tax freezes until April 2026, including the pensions lifetime allowance held at £1mn, as well as inheritance tax thresholds and capital gains tax allowances.
Personal tax threshold for basic and higher rate taxpayers have also been frozen.