UK prepared for tax rises, spending cuts

Govt faces 'unpalatable choices' as it tries to fill finance gap, balance books

The British Treasury has warned that taxes will go up as the government moves to address what has been described as an "eye-watering black hole" in public finances.

Prime Minister Rishi Sunak on Monday met with the United Kingdom's finance minister, Chancellor of the Exchequer Jeremy Hunt, to discuss the government's tax and spending plans that are to be laid out in the fiscal statement due on Nov 17.

The Financial Times cited Treasury sources as saying that while "those with the broadest shoulders should be asked to bear the greatest burden", everybody's taxes would go up.

The FT reported that tax increases and public spending cuts worth up to 50 billion pounds ($57.8 billion) are required.

"It is going to be rough. The truth is that everybody will need to contribute more in tax if we are to maintain public services," said one source.

They added: "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 Daily Telegraph newspaper cited Treasury sources as saying 50 percent of the shortfall will be filled through tax rises and the remaining 50 percent through public spending cuts.

The FT report noted that the Treasury is likely to focus on "stealth" tax measures like freezing income tax thresholds.

The government is understood to have ruled out increasing the rates of income tax, National Insurance and VAT, as this would breach the Conservative Party's 2019 general election manifesto promise, said the Telegraph.

Sunak and Hunt already agreed last week that major cuts must be made in public spending, indicating a return to a period of austerity, and that "tough decisions "would be required to address the "eye-watering size" of the "fiscal black hole" left by former prime minister Liz Truss's disastrous mini-Budget.

In their meeting this week, the Treasury said the prime minister and chancellor had "reiterated their commitment to continuing to protect the most vulnerable during what will be a difficult period".

The independent Resolution Foundation think tank suggested that the government now faces a series of "unpalatable choices" in order to balance the books, reported the BBC.

In its new report, the foundation said more people could be pushed into the higher 40 percent rate of tax.

It said the Office for Budget Responsibility, a public body funded by the Treasury, could predict a recession next year, with GDP forecasts cut by up to four percent by the end of 2024.

It also suggested unemployment could rise by around half a million due to the weaker economic outlook.

Despite this, Sunak's financial policies are being well received among voters with Conservative ratings up in the latest Opinium poll, according to local media.