Chancellor Rachel Reeves is facing challenges ahead of next month’s Budget, with the Institute for Fiscal Studies (IFS) advising against “directionless tinkering and half-baked fixes” in raising government tax revenue. The chancellor is under pressure to increase taxes in order to adhere to her financial rules, which aim to ensure budgetary balance without borrowing for day-to-day public spending and reducing government debt as a share of national income by the end of the parliament.
Analysts suggest that Reeves may need to generate tens of billions of pounds through tax increases or expenditure cuts to meet these guidelines. However, prior to the 2024 general election, Labour has committed to not raising income tax, National Insurance, or VAT for working individuals. The IFS indicated that it might be feasible to raise significant revenue without breaching these promises, but this would require careful navigation of various constraints.
The think tank highlighted “serious constraints” on major taxes such as corporation tax, council tax, business rates, and fuel duties, while warning that some tax-raising options could negatively impact the economy. In its annual Green Budget report, the IFS called for comprehensive tax reform to create a more equitable system that aligns tax rates across various income forms.
The report also discussed the potential of reforming property tax and capital gains tax as effective starting points. Specific suggestions included updating council tax to reflect current property values instead of outdated assessments from 1991. It cautioned against implementing a wealth tax due to practical challenges and suggested that instead of such measures, existing wealth-related taxes should be improved.
Lastly, a Treasury spokesperson reaffirmed that the Budget would aim to balance funding public services with fostering growth and investment in businesses.
Source: https://www.bbc.com/news/articles/cx2n08n15w2o?at_medium=RSS&at_campaign=rss