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Rachel Reeves claims that the UK's finances are healthy and that she will not “return with more tax increases,” but will raise taxes next month to close the finances. I left the door open.
The prime minister's plan was blown off the course by poor economic data, including flatline growth, threatening to wipe out the £9.9 billion error margin that gave her own financial rules in the October budget It was done.
Reeves is expected to use a statement on March 26 to rebuild that buffer, indicating that “rooting waste” in public spending is her first choice . However, the Treasury has refused to rule out tax increases as part of the package. One aide said Reeves “nothing is off the table.”
The fiscal outlook could still improve from now onwards, during the time when the Office for Budget Responsibility prepares its final report along with a statement on March 26th. OBR's initial forecast last week showed that Reeves' headroom was wiped out.
The Financial Times asked in a statement on March 26 whether Reeves could rule out tax changes, but the Treasury did not.
“Our commitment to fiscal rules and sound finances is unnegotiable. As the Prime Minister said, the Budget Responsibility Bureau will publish its updated forecast on March 26th, and she will respond to it at that time. ”
The Treasury added that it is committed to the fall budget, one “major” financial event a year.
Among the options being discussed in the Treasury next month is the continuing freeze on income tax standards and allowances beyond 2028, and a move that was also discarded by Reeves in the October budget.
The Institute of Fiscal Studies think tank says the 2028-29 freeze income tax standard will bring about £3.5 billion (£4 billion per year).
Treasury officials have described the idea in a variety of ways, both “interesting” and “obvious.”
Prior to the budget, the government explained that continuing the freeze to the threshold that began under conservatives would not violate the worker's manifesto pledge to not raise income taxes. Reeves eventually announced that the freeze would end and that it would use it to show the contrast of taxes between labour and Tories.
Officials say Reeves decided not to maintain the freeze in October because he wanted a “something positive” announcement.
Paul Johnson, head of IFS, said that Reeves can now announce the change, but given that if the economy improves, it could turn it back later on, it would be “relatively politically painless.” “He said.
The announcement of the freeze allows the OBR to take action on positive fiscal measures later in Congress, but no immediate law is required. That would help support Reeves' argument that she won't make a full-scale budget next month.
The Tory had set a threshold freeze until 2028. Johnson said: “I am surprised that the Prime Minister did not extend the freeze within the budget.
However, announcing a future freeze on tax thresholds would be considered effectively a tax rise and politically dangerous for Reeves.
“We've now set up an envelope for spending this Congress,” she told the House Treasury Select Committee last November. “We are not going to come back with more tax increases or more borrowings.”
The OBR in October predicted that the UK would have £9.9 billion headroom against Reeves' key fiscal rules, which would result in a surplus of current budgets by 2029. I'll request it. In the question.
The UK economy will drive quarterly growth of just 0.1% in the last month of the year, with forecasters, including the Bank of England, forecasting weaker expansion in 2025 and 2026 than OBR predicted in the October outlook. Masu.
If the OBR determines that the weaknesses will persist, it could reduce the size of the economy's forecast at the end of the OBR forecast period, reduce tax revenue growth, and worsen the financial situation.
If Reeves was forced to save billions of pounds in March, she shows she will focus on reducing public spending, including the welfare bill, as well as public spending that announces even more severe government spending.
