Budget reaction: ‘even more tax hikes could be coming’

The Government has gambled on growth and we could be facing a second round of bruising tax hikes if it fails, think tank warns.

The huge tax hikes announced in the Budget might not be enough to cover the Government’s extravagant spending plans, a think tank has warned.

On Wednesday, chancellor Rachel Reeves delivered a remarkable Budget in which she outlined plans for £40 billion worth of tax hikes – the biggest seen in more than three decades.

She also announced spending plans far exceeding that sum in a bid to kickstart growth in the economy and bolster areas that had suffered from historic underinvestment.

‘Gambling on growth’

But the Institute for Fiscal Studies (IFS) has claimed this is a risky strategy that could see the chancellor plotting a second round of tax hikes if the spending spree doesn’t sufficiently stimulate the economy.

“The gamble is that a big cash injection for public services over the next two years will be enough to turn performance around and that many of the temporary spending pressures won’t persist,” it said in its Budget response.

“If [the chancellor] is wrong about that, and spending pressures don’t dissipate after two years, then to avoid cutting unprotected areas she may well need to come back with another round of tax rises in a couple of years’ time – unless she gets lucky on growth.”

The situation is especially risky as so much of the Government’s spending will be frontloaded, writes Paul Johnson of the IFS.

“Of the total real-terms increase planned over the next six years, around 60% is in place by the end of year two,” he explained.

“Perhaps it will be possible to spend big now, address various backlogs and temporary pressures, and then slow the spending taps to a dribble later.

“But a Government splashing the cash in the short term and promising to be more austere in future? Stop me if you think you’ve heard this one before.”

What does the Government say?

Those already worried about coping with the fallout from the current Budget will not have been heartened to hear that the chancellor has refused to rule out the possibility of a second round of hikes in the near future.

When asked whether she could promise there were no plans to hike taxes again before the next election, Reeves said: “I’m not going to make a commitment to never change taxes again.

“That would be irresponsible.

“But this is a once in a parliament Budget, to wipe the slate clean after the mess that the Conservatives have left us,” she concluded.