Tax hikes are “increasingly likely” when Chancellor Rachel Reeves delivers her Budget next month after new figures revealed a sharp worsening in the government’s finances, according to Nigel Green, chief executive of deVere Group.
Fresh data show that borrowing over the first five months of the fiscal year has overshot projections by more than £11 billion, intensifying concerns over Britain’s ability to keep debt on a sustainable path.
“The shortfall in public finances is deepening at a pace that demands action,” Green says.
“The Chancellor will need to increase revenues to prevent the markets from questioning the UK’s fiscal credibility.”
The Bank of England’s decision last week to maintain interest rates while consumer prices remain nearly twice the official target, compounds the challenge, Green points out, with growth indicators pointing to slowing activity and a softer labour market, while high inflation keeps the central bank from offering much relief.
“Investors are already demanding a higher premium to hold UK debt,” he says. “If the government signals hesitation or delay, borrowing costs could climb further. To maintain market confidence, the Budget must show a firm commitment to debt reduction, and that will almost certainly involve higher taxation.”
Sterling and gilt prices were affected by the figures, with gilts pushing the 30-year yield well above five and a half percent.
Green highlights that although retail spending ticked up in August on the back of warm weather, the broader economic picture remains fragile – hiring is slowing, wage growth is easing and consumer confidence is subdued.
These trends limit the scope for growth-driven revenue gains and strengthen the case for tax measures to close the deficit, he says. And global markets will scrutinise every detail of the Chancellor’s plan. “International investors need to see evidence that Britain is serious about balancing its books.”
Green added that the deVere Group expects the upcoming Budget to set the tone for financial policy well into next year, with Reeves under “intense pressure to prove that Britain can meet its fiscal obligations despite weaker growth and persistently high inflation.”
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