Britain announces tax hike - Value reaches post-war high. Aims to reduce fiscal deficit
Britain's finance minister, Rachel Reeves, has announced a budget with significant tax increases that will take more money from workers, pension savers and investors. The government aims to create more room to meet deficit reduction targets.
The Office for the Reserve Bank (OBR) has cut its growth forecast, a blow to Prime Minister Keir Starmer, who promised voters a stronger economy a year ago. However, the OBR said the government now has more than double the previous reserve to meet fiscal targets, an important factor for investors assessing the country's debt risks.
The Office for Budget Responsibility said tax increases would amount to £26.1 billion a year. This would take the tax-to-GDP ratio to 38.3%, a record high since World War II, although still lower than the eurozone average of 41%.
Last year, Reeves announced tax increases of £40 billion, the highest since the 1990s, and promised that they would not be repeated. “We will undoubtedly face opposition again. But I have yet to see a more credible or fairer plan for workers,” she said.
The lifting of the two-child limit on welfare payments for poor families is opposed by a majority of Britons, according to polls, but the decision was applauded by Labour Party MPs.
The Institute for Fiscal Studies (IFS) noted that the budget foresees an expansion of spending in the short term, while the bulk of the tax increases will be applied later.
The Office for Budget Responsibility cut its forecast for economic growth, which is now expected to average 1.5% over the next five years, 0.3 percentage points slower than its March forecast. The cut is linked to weaker productivity, reflecting the fallout from factors such as Brexit.
Reeves vowed to prove the watchdog wrong. “We have beaten our forecasts this year and we will beat them again,” she said. However, the institution’s assessment shows that living standards in Britain will rise very little in the coming years, partly due to higher taxes.
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