Friday, June 13, 2025
Is Labour's comprehensive spending review starting to unravel?
The first sign of this was the news that the Office for National Statistics had reported gross domestic product fell by 0.3 per cent in April, compared with growth of 0.2 per cent the previous month, marking the biggest contraction since October 2023.
This has now led to a warning by the influential Institute for Fiscal Studies that any more bad economic news will “almost certainly” spark fresh tax rises. They have claimed that Council tax will already have to rise at its fastest rate in a generation, adding to concerns that the chancellor has left herself with little room for manoeuvre a day after she unveiled her spending plans for the rest of the parliament:
Paul Johnson, the outgoing director of the IFS, said council tax is set to rise at its fastest rate for 20 years as local government tries to close its funding gaps with annual increases of up to 5 per cent. More councils could also reach a “tipping point” unless demands on their resources fall, the think tank warned.
Rachel Reeves insisted she would not need to increase taxes on the same scale as in her first budget, but declined to rule out rises altogether (PA) Mr Johnson also raised the spectre of many more people being forced to pay higher rates of income tax, under so-called ‘fiscal drag’, where the threshold at which workers begin to pay more stays frozen even as wages rise with inflation.
Mr Johnson described this as "the most politically straightforward thing to do” and said it would bring in about £10bn a year by 2029.
In response, government sources did not deny they could extend a freeze on thresholds, saying only that future tax and spend decisions are taken at the Budget.
In a scathing assessment, he suggested that the Treasury was at times “making up the numbers” and described Ms Reeves’ speech to the Commons on Wednesday as “baffling”.
There are also doubts whether the review will deliver what it promises. Most of the uplift in expenditure has gone to health and defence, with other departments getting little or nothing. The failure to address the growing crisis in higher education is particularly concerning. The capital investment is welcome, but the story on revenue expenditure is different.
The increases in health spending well make very little difference without a significant investment in social care to relieve the pressure on hospitals, while here in Wales Ministers are going to have to make some difficult choices just before the next Senedd elections, that could see imflation-busting council tax increases.
As for the investment in rail, the capital money for Welsh railways is spread over ten years and comes nowhere near what we are owed in Barnett consequentials from HS2 and other English projects.
What happens over the summer will determine whether Reeves has got it right or not.
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Fiscal drag will continue raising taxes. HOWEVER, it will not raise enough to support the countries needs. Taxes WILL have to go up. Many ideas have been put forward and can be considered ie higher taxes for those with millions in the bank, taxing overseas earnings, raising social media etc. To me ALL areas should be searched to raise funds as a GROWING country needs money INVESTED IN IT to then encourage overseas funds. No more tax increases at the lower end (except 1st sentence)
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