Brexit

More UK spending? Higher taxes look inevitable: think-tank

Published

6 years ago

February 25, 2020

Britain’s new Finance Minister Rishi Sunak (pictured) will have to raise taxes rather than rely on tweaks to budget rules if he wants to really ramp up spending in a first post-Brexit budget next month, the Resolution Foundation, a think-tank, said.

Sunak is due to announce the tax and spending plans of Prime Minister Boris Johnson’s new government on 11 March.

His predecessor Sajid Javid unexpectedly quit less than two weeks ago, leading to speculation that Johnson wants to raise spending by more than Javid’s budget rules allow.

Johnson plans to help voters in struggling regions who backed him in December’s election by spending more on infrastructure, a big shift for the Conservative Party which has focused on fixing the public finances for the past 10 years.

“But new roads and rail lines are only part of the story,” Jack Leslie, a Resolution Foundation economist, said.

Johnson has also announced the biggest increase in spending on day-to-day public services in 15 years.

“Higher spending will require higher taxes,” Leslie said.

Britain’s fiscal forecasters assess each budget against fiscal rules that the finance ministry sets itself. Javid’s rules aim to balance day-to-day spending against tax revenue within three years.

The Sunday Times reported that Sunak was considering pushing back that target to five years.

The Resolution Foundation said that would create only 15 billion pounds of extra fiscal firepower by the 2024/25 financial year, less margin for error than previous finance ministers have had at a time when spending demands are growing.

The Sunday Times also said Javid had been asked to change the rules to allow 1% leeway on balancing the budget.

“The big question for (Sunak) is the extent to which he undoes big spending cuts to day-to-day public services, and how that is paid for,” the Resolution Foundation said.

Sunak could increase tax revenues by cutting back incentives for private pension contributions, fixing loopholes in inheritance tax and reforming property taxes, it said.

There was likely to be some good news for Sunak as he prepared the budget - reduced debt servicing costs from lower interest rates and inflation mean he will pocket a “a modest fiscal windfall” of 8 billion pounds ($10.4bn) a year by the 2022/23 financial year, the Resolution Foundation said.

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