More big tax rises are ‘inevitable’, ING says
Rachel Reeves will have to do another “big top-up” of tax rises this parliament, analysts at a major bank have said, despite the Chancellor previously vowing not to.
In its outlook for 2025, published today, Dutch lender ING said that Reeves’ controversial October Budget “is likely just the beginning” of several more Budgets characterised by tax hikes.
The prediction comes despite the Chancellor appearing to rule out any further hikes this Parliament at last month’s Confederation of British Industry (CBI) conference when she said that she would not be “coming back with more borrowing or more tax rises”.
“I think it was quite surprising to hear the Chancellor say [that] in her speech the other day,” said James Smith, ING’s UK economist, in a briefing with reporters.
“I think there are so many ways where you could end up with higher taxes. The growth numbers from the OBR (Office for Budget Responsibility) have already been downgraded a bit for the longer term…
“But the main thing is the spending assumption. Yes there’s a lot of spending next year, but thereafter there’s less than one per capita real term rises in spending baked in, which is just never going to happen.”
In her maiden Budget, the Chancellor decided to juice the economy with over £70bn additional annual government spending, thanks to a combination of more borrowing and over £40bn’s worth – 1.5 per cent of the UK’s GDP – of tax rises.
But after next year, the government has committed to pull that spending back down to real term rises of just one per cent.
As well as this optimistic assumption, Smith listed demographic pressures and higher gilt yields – the amount it costs the government to borrow – as other drivers behind his and the Dutch bank’s prediction.
“A big top-up [of tax rises] is inevitable,” ING wrote in its outlook for next year, with Smith citing the fact that just a three per cent real term increase in departmental spending would require a further £10-15bn of tax hikes.
Smith added: “I think extra tax rises are to come. And what would those tax rises look like? I really won’t be surprised to see them come from employer national insurance again.”
The warning from the lender comes despite it forecasting that the UK economy will grow twice as fast as its European counterparts next year.
Britain’s gross domestic product (GDP) will increase by 1.4 per cent in 2025, ING said in the same report, while the Eurozone’s economy is set to grow by just 0.7 per cent.