Reeves expected to float income tax hikes next month
Chancellor Rachel Reeves is expected to float income tax rises next month as she attempts to stick to the government’s fiscal rules.
A freeze on income tax thresholds is currently being discussed in the Treasury, which could raise as much as £4bn a year, according to reports from the Financial Times.
One aide told reports that Reeves was taking “nothing off the table”, despite previous pledges from the Chancellor to not be “coming back with more tax increases”.
While the government has committed to having only one fiscal event per year, £9.9bn of headroom allowed by the fiscal rules has been wiped out by poor growth numbers and high interest rates, leaving the government’s pledge for debt to fall as a share of GDP in peril.
Isaac Stell, investment manager at Wealth Club, explained that the government’s Office for Budget Responsibility is set to deliver a report showing minimal or no headroom when it comes to meeting the rules.
Earlier this week, news broke that the UK had just managed to dodge a recession after the economy grew just 0.1 per cent in the final three months of the year.
“With Reeves committed to her non-negotiable fiscal rules, it is likely that public expenditure will be cut to balance the books with the prospect of additional tax hikes looming in the background,” added Stell.
Therefore, it is widely expected that Reeves will make a statement on 26 March which could include ‘stealth’ tax rises; freezing income tax thresholds could push thousands into higher tax bands.
Asked by the Financial Times whether it could exclude Reeves making tax changes next month, the Treasury failed to do so.
It said: “Our commitment to fiscal rules and sound public finances is non-negotiable. As the chancellor has said, the Office for Budget Responsibility will publish their updated forecast on March the 26th, and she will respond to it then.”