Rachel Reeves to go big in brutal Budget raid – may do the ONE thing she said she wouldn’t
This is no time for “half-baked” measures.
The heat is on Chancellor Rachel Reeves. With her second full Budget looming on November 26, it’s make-or-break time. She can’t fiddle or fudge it, this one has to be oven ready.
That’s not my view, but that of the Institute for Fiscal Studies (IFS), one of the better economic think tanks. Unlike some of the others, whose answer to every question is “more tax”, this one deserves respect. It doesn’t take sides, but is happy to pour scorn on Labour and Tory failures alike, which is as it should be.
Now the IFS has turned its guns on the upcoming Budget. It says Britain can no longer afford “directionless tinkering” or “half-baked fixes”.
Those days are over. Reeves must take radical steps to balance the books. In a striking intervention, it’s urging her to consider something so politically explosive that she has repeatedly ruled it out herself.
Given today’s extreme fiscal position, she may have to go back on her word and do it anyway. Won’t be the first time.
Over the weekend, Labour insiders were dusting off the party’s familiar slogan about “those with the broadest shoulders” paying more.
The problem is, Britain doesn’t have enough super-rich to plug the estimated £30billion or £40billion gap in our public finances, plus the extra £10billion of fiscal headroom Rachel Reeves wants for emergencies.
And if we tap them too hard, even more will be off, leaving the rest of us to shoulder the load.
Reeves can’t realistically go after business again, not after destroying jobs and growth with last year’s National Insurance hikes. Which leaves the great mass of ordinary taxpayers.
As I wrote last week, pensioners, homeowners and families are now in the firing line. But fiddling around with minor inheritance tax or capital gains tax won’t raise anywhere near enough.
Some economists are calling for bigger moves, such as hiking income tax or hitting pensioners with National Insurance, even if it means breaking a key manifesto pledge.
The IFS says wants something even bigger. It’s calling for a swift and brutal one-off raid on wealth.
Reeves recently said she wouldn’t do that. As our fiscal position deteriorates, she may now have no choice.
Left-wing MPs are clamouring for a wealth tax but that’s likely to be highly complex and likely to drive rich taxpayers abroad. Most countries that introduced a permanent wealth tax quickly cancelled it.
However, the IFS reckons a short, sharp one-time swoop might just work, because the rich wouldn’t have time to move their assets.
It reckons this could raise a handsome £30billion but I’m not convinced. A single hit simply won’t fix our long-term problems.
Unless the economy starts growing dramatically (unlikely), or Labour takes control of surging public spending (even more unlikely), Reeves will find herself in the same fiscal hole next year. If she’s still Chancellor.
Also, many wealthy Brits may feel cheated, and flee before the next shock raid.
And once the wealth tax machinery has been set up, the Treasury will be sorely tempted to use it again, steadily dragging more of us into its net. Which is what’s happened with every other new tax introduced over the centuries.
The IFS is right that Reeves can’t afford to serve up a half-baked Budget. She has to turn up the temperature, and ordinary taxpayers will be roasted in the process.
