Jeremy Hunt is set to announce tax rises in his fiscal statement next month, after holding talks today with Prime Minister Rishi Sunak today.
The Treasury said the chancellor and Prime Minister agreed “tough decisions are needed on tax rises as well as spending”, with a Treasury source warning “it’s going to be rough”.
The pair also agreed “on the principle that those with the broadest shoulders should be asked to bear the greatest burden”, but that “it is inevitable that everybody would need to contribute more in tax in the years ahead”.
Hunt has previously warned the statement will need to include spending cuts and tax rises as he tries to get a handle on government borrowing.
The UK’s debt pile has surged after Covid and a series of costly government interventions to freeze energy prices, while long-term UK bond yields also soared during Liz Truss’ short premiership.
The rise in bond yields means a stark increase in the UK’s debt repayment costs and came after £45bn of debt-funded tax cuts, which have almost entirely been overturned now, were announced in a mini-Budget last month.
“The truth is that everybody will need to contribute more in tax if we are to maintain public services,” a Treasury source said.
“After borrowing hundreds of billions of pounds through Covid-19 and implementing massive energy bills support, we won’t be able to fill the fiscal black hole through spending cuts alone.”
The mini-Budget from former chancellor Kwasi Kwarteng created market chaos, leading to a large sell-off in UK bonds and a dip in the FTSE100.
Sunak said during his first speech as Prime Minister last week that he would “place economic stability and confidence at the heart of this government’s agenda” and that meant there would be “difficult decisions to come”.
He also promised to stand by the Tories’ 2019 election manifesto, which committed the government to increased spending on infrastructure and key public services.
It is expected that the fiscal statement will mean a shift away from the big-state conservatism of Boris Johnson to a more traditional Tory economic platform.