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The Budget hack that could soften the tax blow

October 13, 2024
in Business
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The Budget hack that could soften the tax blow
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All these debt measures have various pros and cons. And the one which gives the most favourable answer today may not next year. But all are already published and economists are fairly relaxed about which one is used.

But what of those borrowing costs? £1 of every £12 the government spends goes on interest payments on existing debt.

As expectations grow that it will look to borrow billions more from the financial markets, the cost of new borrowing is already rising affecting fixed-rate mortgage deals.

However, analysts say the rises are likely to be limited, as there’s good appetite among investors to put more money into the system.

And Reeves won’t spend all the available money. Credibility relies on appearing prudent, and she has said she’s not in a “race to get money out of the door”.

Moreover, the vast bulk of any extra spending allowed by a tweak in the rules will go towards investment, or capital spending – in the likes of school buildings and roads.

For Reeves has a second crucial rule she has committed to – the government will fund all day-to-day spending with tax receipts.

Investment projects, if done wisely, create value for future generations, and are recognised by economists and investors as instrumental to boosting growth.

As it stands, investment spending is set to decline relative to the size of the economy. Restoring that would need roughly an extra £20bn.

In an attempt to keep the markets calm, Reeves has promised limits on the speed and extent of investment spending.

Yet that leaves a multi-billion pound problem to solve. On current plans, many public services are facing squeezed budgets for day-to-day spending.

Alleviating that and fulfilling the government’s other manifesto priorities is still likely to mean tax rises, of up to £25bn, according to the Institute for Fiscal Studies. The Labour government hopes to raise £9bn from measures included in its manifesto, but the rest has yet to be spelled out.

Even with a Budget rules hack, there will be winners and losers, determined by the chancellor. The rest of us may have to wait until 30 October to discover which camp we’re in.

Credit: Source link

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