Bringing an end to austerity would cost an additional £31 billion in Government spending – making tax hikes likely if Budget 2018 is to achieve this goal, analysis by the Resolution Foundation shows.
The think tank calculated that an end-of-austerity package, which includes halting spending cuts for public services and social security, would cost an extra £31.4bn by 2022/23.
Matt Whittaker, deputy director at the Resolution Foundation, said:
“The Chancellor has a seemingly impossible task in his Budget of ending austerity, reducing the national debt and keeping the public finances protected against any Brexit uncertainty.
“But should strong recent public finances figures lead the Office for Budget Responsibility (OBR) to deliver a £13bn windfall, the Chancellor’s mission impossible may become just about plausible.”
After borrowing in the first half of 2018 was lower than previously forecast, it’s possible the OBR could upgrade borrowing forecasts.
However, the Chancellor is still likely to increase tax in order to meet the target while also lowering debt, with one potential option being to freeze the main income tax allowances.
Freezing the personal allowance and higher-rate allowance now would go against the Conservative manifesto pledge to increase them to £12,500 and £50,000 respectively by 2020.
But keeping them the same after 2020 could save the Treasury £2bn over the next two years.
Another option would be to cancel plans to cut corporation tax from 19% to 17% in April 2020.
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