The UK Labor government, led by finance minister Rachel Reeves, is considering a £20 billion tax hike to avoid cuts to public services. This measure is part of the next budget scheduled for 10/30/2023. The Resolution Foundation, a leading think tank, says the tax hike is necessary to maintain service levels without cutting spending in real terms.
The foundation recommended that the government adopt a new fiscal rule that rates public debt differently, which would provide more flexibility for long-term investments. James Smith, the Foundation’s director of research, emphasized the importance of a new funding approach that would allow for significant capital investment projects.
To balance public sector equity, the think tank recommends redefining debt to include the value of a wider range of public assets against past debt. This reset could create an additional £50 billion in investment funds.
Demand for fiscal reforms comes after official data pointed to a modest economic expansion of 0.2% in August, after two months of stagnation. However, surveys show a drop in business and consumer confidence due to concerns about potential tax hikes.
Earlier this week, the Institute for Financial Studies estimated that the latest budget under former prime minister Rishi Sunak’s Conservative government called for a £25bn tax hike to ease pressure on public services.
Reeves acknowledged the £22bn shortfall in the general fund left by the Conservatives and signaled that some taxes would inevitably rise. The resolution’s foundation outlined potential revenue sources, including eliminating inheritance tax deductions, increasing capital gains tax and imposing a social security tax on employer contributions to workers’ pensions.
Labor has promised to protect “working people” from tax rises, rejecting increases in key rates of income tax, value added tax, national insurance and corporation tax, all of which currently make up three-quarters of tax revenue.
Reuters contributed to this article.
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