Britain ‘faces up to £30bn of tax rises' to hit Nato defence target

Yahoo

17 hours ago

Britain faces tax rises of up to £30bn in the autumn Budget to fund greater defence spending, economists have warned.
Analysts said higher taxes looked inevitable as without them Rachel Reeves, the Chancellor, would struggle to meet promises to increase defence spending while still meeting her self-imposed fiscal rules.
Sir Keir has pledged that the UK will spend 3pc of GDP on defence by the next parliament and Nato is expected to demand even higher commitments later this year.
Michael Saunders, of consultancy Oxford Economics, said the Prime Minister was likely to ramp up spending gradually over this parliament to make the 3pc and above target easier to meet in future.
Mr Saunders said: 'To establish a more credible path to defence spending 'considerably north of 3pc' next decade, the Government may decide in the autumn Budget that it needs to add some extra spending within the five-year OBR forecast horizon. It's not hard to see pressures for extra fiscal tightening of £15bn to £30bn.'
Nato is expected to require members to lift defence spending to 3.5 pc of GDP in the coming years. The military alliance is likely to set a new increased target at its June summit, piling additional costs on to the Chancellor.
Mark Rutte, the Nato secretary general, recently said: 'We know that the 2pc pledge – agreed way back in 2014 – just doesn't cut it any more. So in 2025, we are finalising a plan to dramatically increase defence spending across the Alliance.'
The demand for additional defence spending comes as Ms Reeves is already under pressure as a result of the recent about-turn on winter fuel payments for pensions and adverse moves in financial markets.
Labour pledged not to increase income tax, National Insurance or VAT in its election manifesto last year. However, Mr Saunders and other economists warned that the Chancellor might have to break one or more of these promises as spending commitments mounted.
Mr Saunders said: 'The need to raise revenues may require the Government to revisit its manifesto commitments, which seemed to rule out increases in most major taxes.'
Earlier this week, the Chancellor repeatedly refused to rule out further tax rises.
'I'm not going to say that I'm not going to take any tax measures in the next four years,' she told an audience of business leaders at the Confederation of British Industry (CBI) annual dinner.
It follows record increases of £40bn in last year's autumn Budget. Ms Reeves has promised not to repeat a raid on this scale.
The Chancellor left herself a margin of £9.9bn to meet her fiscal rules, a wafer-thin buffer that forced her to rip up spending plans in the spring to repair her budget.
Ms Reeves also has to grapple with mounting costs from the Government's pledge to restore winter fuel payments and review the two-child benefit cap.
There are also concerns that a downgrade to the UK's economic growth by the OBR and increased government borrowing costs caused by rising gilt yields could wipe out Ms Reeves's narrow fiscal headroom.
The Treasury was contacted for comment.
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