On the day that it has released its ‘Stagnation Nation’ report at an event in Manchester, the left leaning think tank, the ‘Resolution Foundation’ think tank has suggested that the government needs to fill a £40 billion black hole in the UK’s public finances.
Speaking on the BBC Radio 4 ‘Today’ programme, Torsten Bell, the Chief Executive of the foundation said, “The country has become poorer and this prime minister has previously told us that the way to deal with that is to pay higher taxes to maintain some of those public services”.
The think tank has suggested that the government now faces a series of unpalatable choices in order to balance the books. These include failing to raise income tax thresholds with inflation, and not up-rating benefits with rises.
Last night, the UK government briefed that the tax rises were inevitable as part of the government’s financial statement on 17 November. The comments by the Treasury coincide with the Bank of England beginning its first sale of gilts held in its asset purchase facility later this morning. The timing of the government’s remarks once again reiterates the importance of the government maintaining market confidence.
The forecast for the public finances has worsened since the summer. The monthly cost of government borrowing has risen considerably in the light of rising interest rates, with tax revenues also impacted by lower than expected growth forecasts.
The government also still needs to address the deficit created by the tax cuts introduced by the Truss administration. Although some of these tax cuts have already been reversed, notably the reduction in corporation tax and the top rate of income tax, £17 billion of these tax cuts remain in place. These emanate primarily from the cancellation of the rise of National Insurance, previously introduced by Rishi Sunak as chancellor earlier in the year.
The prospect of rising tax rises has been criticized this morning by the Conservative MP, John Redwood. Writing on Twitter, Mr Redwood said, “Too many tax rises now means the economy will shrink so we will be borrowing more, not less”. He continued, “The budget should concentrate on controlling borrowing this year and fighting recession”.
In its report launched this morning, the Resolution Foundation has pointed to the issues with productivity. Comparing how UK productivity had slipped in the last decade in international terms, after better performance between 1990 and 2010, Lindsay Judge, Research Director at the Resolution Foundation said, “Closing productivity gaps takes an awful lot of effort”.
The Institute of Directors economic confidence index, which measures business leader’s optimism, fell back to -60 last month. Of the 73% of IOD members who said they were pessimistic about the prospects for the UK economy, around half (49%) stated ‘political instability in the UK government’ as the reason for their pessimism.
