On Wednesday the Chancellor refused to rule out imposing further tax rises on businesses in the spring, despite setting out a raft of new policies intended to kickstart growth in the UK economy.
While much of the jitters in the markets -which prompted gilt yields to soar two weeks ago – have since calmed down, the foundation said 10-year gilt yields remain 0.5 percentage points above the level forecast by the Office of Budget Responsibility (OBR) last autumn. Should they remain at this level, UK debt-servicing costs would increase by around £7bn a year.
“Having set out these rules only last autumn, and repeatedly recommitted to them in recent weeks, the Chancellor will have to meet them on 26 March or risk further market jitters,” he said.
Higher interest rates and gloomier economic outlooks meant Reeves was unable to reject the suggestion that she may be forced to come back with further tax increases despite raising £40bn in taxes, largely on businesses, in her autumn Budget.
Reeves is due to deliver a fiscal statement in response to the OBR’s official forecasts on 26 March.
Reeves is likely to see tax rises as too politically damaging, but if she is forced to increase taxation then she could look to further put up capital gains tax, or scrap the inheritance tax gifting rule, which allows people to gift assets to family members up to seven years before their death.
The plan for a new road tunnel under the Thames, and a proposed a mass transit scheme in West Yorkshire, will require cash in the upcoming spending review if they are to go ahead in full.
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Read MoreOne minister suggested Heathrow’s third runway may never be built, warning that “it’s going to be really difficult” for the airport to produce a plan that fits in with the UK’s carbon budgets.
In her speech, Reeves acknowledged that “the increase in employers’ national insurance contributions has consequences on business and beyond”, adding: “I accept that there are costs to responsibility.”
But she insisted that “the costs of irresponsibility would have been far higher” had she not implemented the measures in her Budget.
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