Britain’s hard-pressed middle earners face a painful new tax squeeze as the Chancellor scrambles to fill fiscal black hole, experts warned yesterday.
Rachel Reeves is on course to break her election promise not to put up taxes including income tax, National Insurance and VAT, Institute of Fiscal Studies director Paul Johnson said.
It came as a damning new poll by YouGov showed that three-quarters of Britons believe Ms Reeves will smash Labour’s vow by putting up one of the UK’s main taxes.
The Chancellor could be facing a black hole of up to £40 billion in the October Budget after Labour was forced into a humiliating U-turn on welfare reform amid economic downgrades.
Ms Reeves last night refused to rule out tax rises in the autumn, saying it would be ‘irresponsible for a Chancellor to do that’.
And, she told the Guardian, despite her tears in the Commons this week, she never entertained the idea of resigning, adding: ‘I didn’t work that hard to then quit.’
The Chancellor has also refused to rule out a raid on pensions amid growing fears that she will target the retirement pots of millions of workers in the autumn.
Mr Johnson told the BBC: ‘If you are looking at [a] £30 billion [black hole], which is quite plausible, I can’t see a way you raise that kind of money without hitting people on middle incomes as they did with the National Insurance last year.’
Experts claim Rachel Reeves is on course to break her election promise not to put up any major taxes including income tax, National Insurance and VAT
Despite crying in the House of Commons following criticism of her performance and a series of damning U-turns, Ms Reeves told the Guardian that she never entertained the idea of resigning, adding: ‘I didn’t work that hard to then quit’
He added that Ms Reeves will have to break her election vow not to put up the main taxes.
‘If you are looking at big money it has to be something in income tax, National Insurance and VAT,’ he said. ‘To raise that kind of money, you are looking at people on middle kinds of income.’
Months of speculation over pension tax changes ahead of the Budget could prove highly damaging if – as was the case last year – it leads to a rush of savers withdrawing cash from their retirement pots early to avoid being hit.
Mr Johnson said: ‘There was all sorts of speculation before the last Budget, in fact tens of thousands of people changed their pension arrangements for fear that there will be a change which there then wasn’t.
‘We’ve heard nothing from the Government about what its view is about how pensions should be taxed.’
He said changing pension tax relief would ‘hit a very large number of teachers and nurses and other people in the public sector who the Government might not want to hurt.’
Two former pensions ministers – Sir Steve Webb and Baroness Altmann – previously told the Mail that Ms Reeves should rule out a raid on retirement savings.
The Office for Budget Responsibility (OBR) halved its growth forecast for this year in March.
Institute of Fiscal Studies director Paul Johnson (pictured) said that Reeves will be forced to hike taxes to address a major shortfall in the country’s finances: ‘To raise that kind of money, you are looking at people on middle kinds of income’
This week the watchdog hinted at a further likely downgrade after admitting that previous forecasts had proved too optimistic.
Economists have warned that a 0.2 per cent downgrade in the OBR’s forecasts would leave the Chancellor with an £18 billion hole to fill.
The problem has been made worse by costly U-turns on welfare. Keir Starmer’s climbdown on the winter fuel allowance will cost £1.5 billion.
The retreat over cuts to the personal independence payment (PIP) could cost as much as £6 billion, and Labour MPs are pushing for the abolition of the two-child benefit cap.
