Warning taxes could still rise despite benefit cuts
House of CommonsTaxes may have to rise in the autumn, economists have warned, despite big benefit cuts and spending reductions in Wednesday's Spring Statement.
The Institute for Fiscal Studies think tank said Chancellor Rachel Reeves's headroom to deal with economic risks, like Donald Trump's tariffs, was "very small".
Director Paul Johnson said there was a "good chance" economic forecasts would deteriorate significantly before October's Budget, "which will likely mean raising taxes even further".
Prime Minister Sir Keir Starmer did not rule out further tax rises in the autumn but pointed out the government had resisted doing so in its Spring Statement.
"Obviously, I'm not going to write future budgets - every prime minister and chancellor from every government always takes that position," he told reporters.
"But if you look at the pattern, if you like, or the intent for both the Budget and the Spring Statement, you'll see that when it comes to the decisions we've had to make, we have not taken the decision to increase tax, and I think that indicates the mindset that we bring to this."
In its election manifesto Labour promised not to increase taxes on "working people", covering National Insurance, Income Tax and VAT.
However, in last autumn's Budget the government increased National Insurance contributions for employers, saying the hike was needed to plug a "black hole" in the nations finances and invest in the NHS and other public services.
Overnight, Trump announced new tariffs - or import taxes - of 25% on cars and car parts coming into the US from 2 April.
The UK has already been hit by 25% tariffs on steel and aluminium exported to the US.
Meanwhile, Trump has promised a raft of further tariffs from 2 April.
Reeves told the BBC the UK is in "intensive negotiations" with the US to carve out a deal to avoid tariffs.
However, the prospect of a global trade war still threatens to wipe out the headroom in the country's finances.
Mr Johnson said Trump's announcement overnight demonstrated "we live in a risky and changing world".
"There is a good chance that economic and fiscal forecasts will deteriorate significantly between now and an autumn Budget," he said.
"If so, she will need to come back for more; which will likely mean raising taxes even further."
He added that "months of speculation" over which taxes might rise could have "damaging" political and economic consequences.
Asked on Wednesday if there could be more tax rises in October, Reeves said: "We'll never have to do a Budget like that again."
Pressed on BBC Radio 4's Today programme over whether if things went wrong there may need to be more tax rises or spending cuts, the chancellor acknowledged "there's always risks" but said there were also "opportunities" for economic growth from housebuilding and reforms to the planning system.
The government's independent spending watchdog, the Office for Budget Responsibility (OBR), halved its growth forecast for the UK this year to 1%, down from its October prediction of 2%.
But in subsequent years the OBR predicted growth would be higher than expected thanks, in part, to more housebuilding.
The chancellor has insisted she will stick to her self-imposed "fiscal rules" - designed to reassure financial markets.
The two key ones are not to borrow to fund day-to-day public spending and to get government debt falling as a share of national income by the end of this parliament.
The chancellor said changes in the global economy meant she would have missed her rule on spending by £4.1bn due to an increase in government borrowing costs.
She said measures announced on Wednesday "restored in full our headroom" to £9.9bn.
But OBR chairman Richard Hughes warned that if the US levied tariffs of 20% on imports, and the UK and the rest of the world retaliated with the same, this could "wipe out" the chancellor's headroom.