Chancellor Rachel Reeves is “rolling the pitch for some big tax rises” in the Budget, a top economist warned on Wednesday.
Paul Johnson, director of the Institute for Fiscal Studies, believes the Government briefing that it is seeking £40billion from a tax and public spending shake-up was laying the ground for some significant increases in levies.
He told The Standard: “This looks like rolling the pitch for big tax rises but not any way presumably on the scale of £40billion.”
He believes part of the £40billion will be smaller rises in spending in some parts of the public sector.
But this would still leave the Treasury having to find a hefty chunk of the £40billion from tax rises.
“The only way they are going to get the big numbers they are talking about there is breaking their manifesto commitments on National Insurance, VAT or income tax,” he believes.
These three levies are the big revenue raisers for the Treasury.
Sir Keir Starmer and Ms Reeves have signalled that they are set to increase National Insurance on employers in the Budget on October 30.
The Prime Minister has argued that the Government can do this while still sticking to its manifesto commitments on tax, on the basis that the promises were not to hike levies on “working people”.
But the Tories and the IFS believe it would be a breach.
Labour’s manifesto states: “We will ensure taxes on working people are kept as low as possible. Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.”
Chief Secretary to the Treasury Darren Jones refused to say whether a hike on employer national insurance contributions would amount to a tax on workers and insisted the Budget would be the "start of a period of change" that will see better public services "over the years ahead".
He added: "As the Prime Minister and the Chancellor have been very clear, we will honour our promises to the British people as we set out in our manifesto at the election, which is that we will not be raising taxes on working people, so we will not be increasing income tax, national insurance or VAT on working people."
Asked whether he could rule out real-terms spending cuts for crucial public services, Mr Jones said: "We're setting budgets for public services at the end of October for one financial year, 25/26.
"We will not be returning to austerity and we will present an honest set of spending plans.”
A one percentage point increase in the Class 1 rate of employer NI could raise £8.45 billion over the 2025 to 2026 tax year, and a two percentage point hike could raise £16.9 billion, according to data compiled by HMRC and EY.
This would go some way to closing the £22 billion “black hole” which Ms Reeves said had been inherited by the previous Conservative government, and to help fund spending promises.
Her predecessor Jeremy Hunt strongly rejects the claim that he left a £22billion black hole in the public finances.
The £40billion figure would be needed, according to Government sources, to boost public services.
Ministers have said that capital gains tax will not go up to 39 per cent but have not ruled out a smaller rise, or changes to inheritance tax.
Mr Johnson also stressed that inflation falling to 1.7 per cent in September would mean working-age people on benefits would “fall further” behind pensioners and people in better paid jobs.
September inflation is used to set working-age benefits for next year while pensions will go up with earnings, at more than four cent, under the so-called “triple lock”.
