New UK growth forecasts from the Bank of England show that Rishi Sunak will not have the “fiscal headroom” to cut taxes before the next election, according to shadow chancellor Rachel Reeves.
The central bank now forecasts the UK economy will grow by 1.5 and 1 per cent in 2023 and 2024 respectively, compared to the 2.1 and 1.3 per cent predicted by the Office for Budget Responsibility (OBR) last month.
Sunak has signalled he wants to cut taxes before the next election, set to be in 2024, after increasing the tax burden post-Covid to its highest level in five decades.
Institute for Fiscal Studies director Paul Johnson said after the autumn Budget that if OBR forecasts hold that Sunak will have “space for a pre-election tax giveaway of perhaps £7bn”.
Reeves said the latest Bank of England figures, when combined with the central bank’s inflation forecasts, could mean government tax revenues will be £6bn and £27bn smaller than expected in 2023 and 2024 respectively.
“The Conservatives have no plan to tackle the cost of living crisis, no plan to shift a huge and unfair burden of tax from working people, and no plan for growth,” she said.
“Without growth, we are trapped in a high tax, low growth economy. Pair that with this government’s wasteful approach to taxpayers money, you’re left with extremely irresponsible stewards of our economy.”
A spokesperson for the Treasury called the calculations “misleading” as Labour has taken the OBR’s calculations on tax and applied it to a different data set.
“The Budget was informed by the OBR’s independent forecast of the British economy and public finances,” they said.
“This analysis showed that the economy is recovering faster than expected as a result of the unprecedented actions this government took to protect livelihoods.”
The chancellor has announced a series of tax rises this year in the wake of record post-war government spending during Covid-19.
This includes an increase in corporation tax from 19 to 25 per cent for British firms that have annual profits of £250,000 or more from 2023.
From next year National Insurance Contributions will increase by 1.25 basis points for individuals and businesses.
Sunak made it clear during his Budget speech that he intended to cut taxes before the next election when net borrowing has decreased from its historically high levels.
“The moments that make life worth living aren’t created by government, aren’t announced by government, aren’t granted by government,” he said.
“And, we believe people should keep more of the rewards of those efforts. Yes, we’ve taken some corrective action to fund the NHS and get our debt under control. But as we look towards the future, I want to say this simple thing to the House and the British people – my goal is to reduce taxes.
“By the end of this parliament, I want taxes to be going down not up.”