Rachel Reeves is under pressure to raise £25 billion in taxes to avoid austerity measures, according to IFS.
- The IFS warns that proposed tax rises need to double those made in 2010.
- Reeves considers increasing employer national insurance as a key strategy.
- Tax reforms could generate £9 billion, but additional £16 billion needed.
- Reeves is exploring changes in pension rules to raise necessary funds.
Rachel Reeves is under significant pressure to identify £25 billion in new tax revenues to prevent the implementation of austerity measures, as emphasized by the Institute for Fiscal Studies (IFS). The organization highlights that this tax increase would need to be significantly larger than those introduced by George Osborne in 2010 to allow for the planned rise in public spending, even when considering looser fiscal guidelines.
The potential for increasing employer national insurance contributions is being seriously evaluated by Reeves. This move appears viable as it circumvents Labour’s commitment to avoid raising taxes on ‘working people’, since employer contributions fall outside this promise. An elevation of just 1% in these contributions might bring in approximately £8.9 billion.
Labour’s exploration into additional tax measures, such as applying VAT to private school fees and implementing a stricter levy on oil and gas companies, is acknowledged by the IFS. However, these strategies alone may not suffice to shield public services from further budget cuts. The IFS projects that, even with these reforms generating about £9 billion, an outstanding requirement of an extra £16 billion in tax revenue persists to align departmental budgets with national income growth, necessitating a total tax enhancement of £25 billion.
Paul Johnson, Director of the IFS, remarked, “The first budget of this new administration could be the most consequential since at least 2010. The new chancellor is committed to increasing investment spending, and to funding public services. To do so, she will need to increase taxes, or borrowing, or both.”
Furthermore, Rachel Reeves is contemplating transformations within the pensions framework. This includes potentially decreasing the tax-free lump sum withdrawable at retirement from £268,275 to £100,000, alongside modifying rules regarding pension inheritance. Despite optimistic economic forecasts, the requirement for substantial tax hikes is underscored by rising welfare expenses driven by an ageing population and escalating debt interest payments.
A government representative reiterated the adminstration’s dedication to reinforcing a pro-growth economic environment in the UK, aiming to tackle these challenges effectively.
The IFS underscores the necessity for a substantial tax increase by Rachel Reeves, highlighting significant fiscal challenges.
