British finance minister Rachel Reeves announced a big tax-raising budget on Wednesday that will take more money from workers, people saving for a pension and investors to give herself greater room to meet her deficit-reduction targets.
Britain’s fiscal watchdog cut its forecasts for economic growth for the coming years – a setback for struggling Prime Minister Keir Starmer who promised voters last year he would speed up the economy.
But the Office for Budget Responsibility (OBR) said the government will now have more than double its previous buffer for meeting its fiscal targets, something closely watched by investors assessing Britain’s borrowing risks.
The OBR – in forecasts published in error before Reeves began her annual tax and spending speech to parliament, and first reported by Reuters – said the tax hikes would amount to an annual 26.1 billion pounds ($34.5 billion).
That will push Britain’s tax-to-GDP ratio to 38.3% of economic output, a fresh post-war high, although this will still be lower than the euro zone’s average of 41% last year.
Last year, Reeves ordered 40 billion pounds of tax hikes – the biggest since the 1990s – and she promised at the time that they would be a one-off.
“No doubt, we will face opposition again. But I have yet to see a credible, or a fairer alternative plan for working people,” Reeves said.
GROWTH FORECASTS CUT
The removal of a two-child limit on welfare payments to poor families is opposed by most Britons, according to opinion polls but the announcement earned cheers from Labour Party lawmakers.
Although the next national election is not due until 2029, the authority of Reeves and Starmer has been questioned within their centre-left party.
The Institute for Fiscal Studies think tank highlighted how the budget included an increase in spending in the short term while much of the push to raise taxes would hit later on.
“The future restraint, just before the next election? One could be forgiven for treating that with a healthy dose of scepticism,” IFS director Helen Miller said.