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Wednesday, Jul 02, 2025

IFS Predicts Possible Tax Increases in Upcoming Autumn Budget

IFS Predicts Possible Tax Increases in Upcoming Autumn Budget

The Institute for Fiscal Studies indicates substantial fiscal challenges that may compel Chancellor Rachel Reeves to raise taxes.
The Institute for Fiscal Studies (IFS) has forecasted a significant likelihood that Chancellor Rachel Reeves will need to implement tax increases in her forthcoming autumn budget, citing deteriorating economic conditions.

Paul Johnson, the IFS director, presented this assessment, warning that a decline in economic and fiscal forecasts could necessitate further tax hikes.

He emphasized the potential harm that speculation about specific tax increases could inflict on the economy, noting that without a clear tax strategy, the government remains uncertain about its fiscal direction.

Johnson highlighted the puzzling consistency in fiscal headroom.

He indicated that the £9.9 billion of headroom available in the autumn budget has remained essentially unchanged.

He remarked on the Treasury's efforts to maintain this figure, suggesting that this approach could hinder rational policy-making.

His assertion raised concerns over whether it is prudent to fixate on maintaining the same fiscal parameters in the face of evolving economic realities.

On the matter of recent cuts to sickness and disability benefits, Johnson described the cuts as 'defensible' due to rising costs associated with increased claimants and expenditures.

However, he criticized the announcement of an additional £500 million in cuts solely to preserve the fiscal headroom, arguing that such actions could undermine the rationale behind ongoing welfare reforms and further complicate the economic response.

In discussing future spending plans, the IFS projected a notable reduction in fiscal flexibility, warning that rigid fiscal rules alongside limited headroom could disrupt sensible policy-making.

Johnson noted that upcoming government spending will need to grow at rates of 2.5% in 2025-26, 1.8% in 2026-27, and 1.0% in subsequent years.

This trajectory suggests that spending cuts in certain departments may be unavoidable if projected growth rates are to be met.

Today’s developments follow broader discussions within the government regarding fiscal strategy amidst growing concerns about child poverty and economic stability.

Recent data revealed that child poverty rates have reached alarming levels, with nearly 4.5 million children reported living in poverty across the UK. Conversely, child poverty in Scotland is reportedly declining, attributed to different taxation and welfare measures implemented by the Scottish government.

In political circles, Keir Starmer has downplayed the necessity of tax raises while reiterating the importance of addressing economic challenges.

His statements reflect an ongoing debate about the balance between fiscal responsibility and socio-economic support in times of financial strain.

The discussions are heightened by broader economic developments, including potential tariffs and their impacts on trade policies, particularly involving relations with the United States.
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