People across the UK may face tax increases for years to come as Rishi Sunak attempts to plug a £40 billion 'black hole in the public finances, according to reports.
The Prime Minister and Chancellor Jeremy Hunt met on Monday to discuss options for the November 17 financial statement, and they agreed that "tough decisions" on both tax increases and spending were required.
According to the Daily Telegraph, Sunak and Hunt agreed to freeze the thresholds at which people begin to pay different rates of income tax and national insurance.
In his Autumn Statement, Hunt is expected to fill the gap with a combination of 50% tax increases and 50% public spending cuts, and a Treasury source has warned that "everyone would need to contribute more in tax in the years ahead."
The source is quoted as saying, "It's going to be rough." The truth is that everyone will have to pay more taxes in order to keep public services running. We won't be able to close the fiscal gap through spending cuts alone after borrowing hundreds of billions of pounds through Covid-19 and implementing massive energy bill support."
Sunak and Hunt face an "unpalatable menu" when it comes to rebalancing the nation's finances, according to a Resolution Foundation report. According to the report, the government will need to find at least £40 billion, most likely through a combination of tax increases and spending cuts, against the backdrop of a bleak economic outlook due to Liz Truss' disastrous mini-budget.
According to the think tank, the Office for Budget Responsibility may forecast a recession next year, with GDP forecasts reduced by up to 4% by the end of 2024. According to the report, unemployment could rise by half a million, with the weaker economic outlook raising borrowing by £20 billion per year by 2026-2027.
"The government has a little more than two weeks to finalize its plans to repair its economic credibility and the sustainability of the public finances," said James Smith, research director at the Resolution Foundation.
"While the recent focus has been on post-Treeconomics conditions improving, the central picture remains one of weaker growth, higher borrowing costs, and costly tax cuts that have left a fiscal hole of at least £40 billion to fill."
According to the report, the government may struggle to meet its fiscal rules of reducing the debt-to-GDP ratio in the medium term and delivering a current-budget balance unless "significant further policy action is taken."