Chancellor Rachel Reeves has signalled that broad-based tax increases are on the cards in her upcoming Budget, as she aims to get the country’s £2.6 trillion national debt under control. In a rare pre-Budget speech, Reeves acknowledged that “if we are to build the future of Britain, we will all have to contribute to that effort.”
The pound fell to a seven-month low against the dollar, dropping over 0.5% to less than $1.31, as investors reacted to Reeves’ comments. UK government borrowing costs also declined, with the yield on 10-year gilts falling as much as 6 basis points to 4.38%, as the Chancellor emphasised the need to tackle the country’s high debt levels.
Reeves stated that Britain currently has the highest borrowing costs of any G7 nation, with 1 in 10 pounds spent on debt interest payments. She said: “The less we spend on debt interest, the more we can spend on the priorities of working people.”
The Chancellor’s pre-Budget remarks suggest she is preparing the ground for tax hikes, in an effort to repair the country’s battered public finances. However, the move risks slowing economic growth and hiring, according to some analysts.
Charlotte Kennedy of wealth manager Rathbones said Reeves’ speech “effectively lays the groundwork for tax rises, seemingly intended to soften the blow at the end of the long run-up to the Budget.” She warned that trimming around the edges will not be enough to address the multi-billion-pound shortfall in public finances.
With the UK facing high inflation and rising interest rates, Reeves acknowledged the “hard choices” ahead, as she aims to protect public services, keep a lid on prices, and ensure the economy is secure with debt under control. Businesses and households now await the details of the Chancellor’s fiscal plan on 26th November.
