Latest news with #NIESR
Daily Record
14 hours ago
- Business
- Daily Record
Scots could face £3bn tax rise and government spending cuts
David Phillips, Head of Devolved and Local Government Finance at the Institute for Fiscal Studies (IFS) warned taxpayers could face higher taxes. Scotland could be facing up to £3billion of tax rises and spending cuts, the Sunday Mail can reveal. It comes after it emerged last week Chancellor Rachel Reeves is facing a £41 billion budget black hole. The economic problems stem from the government's numerous u-turns on policies like winter fuel payments and welfare reform as well as low economic growth and higher borrowing. Experts have warned whatever Reeves decides to do to balance the Treasury's books, there will be a direct impact on Scotland - either through tax rises or spending cuts. David Phillips, Head of Devolved and Local Government Finance at the Institute for Fiscal Studies (IFS) said Scotland's could be impacted by up to £3billion. He warned that Scottish taxpayers could face higher taxes if Reeves chooses to raise reserved levies such as VAT, corporation tax or capital gains taxes. Equally if Scotland's block grant is cut First Minister John Swinney will need to decide whether to plug the hole with increases to taxes controlled by Holyrood, or by slashing public services. Philips said: 'If Rachel Reeves cuts spending, the impact on the Scottish government's funding will depend on what is cut. 'Cuts to reserved spending wouldn't affect government's funding but would affect Scots directly. 'Cuts to services that are devolved in Scotland would mean cuts to the Scottish Government budget via the Barnett Formula, or the block grant adjustments for devolved benefits if she revisits cuts to disability benefits, for example.' If the Chancellor raises taxes rather than cutting services, the impact would be directly on Scots rather than through a reduction in the Scottish government's funding as the majority of taxes are reserved to Westminster. Phillips said if Reeves chose to raise taxes that are devolved to Holyrood, like income tax, it would lead to a cut to the block grant, leaving ministers to decide whether to iplement their own tax rises or bring in spending cuts. He said: 'If those in the rest of the UK are paying more tax to support things that benefit Scotland too, either Scots need to pay more tax or need to forgo those benefits. 'That's what this system of block grant adjustments achieves.' Influential think tank the National Institute of Economic and Social Research (NIESR) last week predicted Reeves would need to raise taxes to meet her own strict fiscal rules. It recommended a 'moderate but sustained increase in taxes ' to ensure Reeves meets Labour's 'stability rule' - to get the current budget into surplus by 2028/29 by bringing in more money than it spends on public services and welfare. NIESR predicted the government would miss this target by £41.2 billion and said tax rises were not just a possibility but were now inevitable. Join the Daily Record WhatsApp community! Get the latest news sent straight to your messages by joining our WhatsApp community today. You'll receive daily updates on breaking news as well as the top headlines across Scotland. No one will be able to see who is signed up and no one can send messages except the Daily Record team. All you have to do is click here if you're on mobile, select 'Join Community' and you're in! If you're on a desktop, simply scan the QR code above with your phone and click 'Join Community'. We also treat our community members to special offers, promotions, and adverts from us and our partners. If you don't like our community, you can check out any time you like. To leave our community click on the name at the top of your screen and choose 'exit group'.
Daily Mail
2 days ago
- Business
- Daily Mail
Labour lays the ground for September tax bombshell as Rachel Reeves looks to fill £50billion black hole in nation's finances
Labour is laying the ground for tax reforms this autumn that could spell misery for millions. From September the Chancellor will be attempting to prepare the country for a difficult Budget that could be held in November, according to reports. Rachel Reeves must find £50 billion in tax rises or spending cuts to balance the books, the National Institute of Economic and Social Research (NIESR) said this week. However, she has vowed to stick to her pledge to not raise income tax, national insurance or VAT – and will also keep her fiscal rules preventing more borrowing. The NIESR said higher-than-expected public sector borrowing and weaker economic growth had left the Chancellor with an 'impossible' choice. The Bank of England also warned that it is likely to slow the pace of interest cuts as soaring food prices caused by Labour's tax increases threaten to drive inflation to 4 per cent this year. Ms Reeves has already begun meetings with Sir Keir Starmer to draw up a plan for the Budget, according to The Guardian. One tax that is almost certain to feature is a rise in gambling levies. The Chancellor said on Thursday: 'We've launched a review into gambling taxes. We'll set out our policies in our budget later this year.' The Bank of England (pictured) also warned that it is likely to slow the pace of interest cuts as soaring food prices caused by Labour's tax increases threaten to drive inflation to 4 per cent this year Taxes Reeves could hike to fill the black hole Gambling taxes: A think-tank said it could raise £3.2billion. Continue freeze on income tax thresholds: Thresholds normally rise in line with inflation but were frozen by the Tories until 2028. Extending this could potentially raise £8billion a year. Hiking National Insurance: The Chancellor already broke her promise not to increase this measure at the last Budget. Scrapping Lifetime Isa: The Treasury Committee is looking into whether Lifetime Isas – which provide a tax-free nest egg – are fit for purpose. Pension tax relief: Ms Reeves once wrote applying a flat rate of pensions tax relief of 33 per cent – currently 20 per cent – would be 'a welcome boost for basic-rate taxpayers'. Another option that could be under consideration is to target a subsidy paid to High Street banks that costs taxpayers £20billion. Lenders currently receive interest payments of 4 per cent on reserves – which amount to almost £600billion – they have to hold risk-free at the Bank of England. 'The Treasury is on the hook to send the Bank of England over £20billion a year to cover its losses,' said Dominic Caddick of the New Economics Foundation. Yesterday, Shadow Chancellor Mel Stride accused Ms Reeves of 'economic mismanagement'. He added: 'The Chancellor is planning yet more tax raids to plug the gaping black hole she has created – and it's hardworking savers and pensioners who'll pay the price. 'Rachel Reeves is taxing your future to fund her failure.'
Daily Mail
2 days ago
- Business
- Daily Mail
Report: Starmer and Reeves 'lay the ground for massive tax hikes'
Keir Starmer and Rachel Reeves are preparing to soften Brits up for more eye-watering tax hikes, it was claimed today. The PM and Chancellor are said to have started holding meetings on how to fill a black hole in the public finances estimated at up to £50billion. Sir Keir pointedly refused to rule out tax increases earlier this week, while the Bank of England has voiced concern about persistent inflationary pressure - which puts more pressure on the finances. However, ministers have been adamant that they will stick to the manifesto promise not to target the main rates of income tax, national insurance or VAT . The tax burden is already set to hit a new high as a proportion of GDP after the last Budget imposed a £41billion increase - the biggest on record for a single package. One insider told the Guardian that the government wanted there to be 'no surprises' for markets in the Autumn. 'Last year was a model of how to do it,' the adviser said. 'Had we done it otherwise, it would have been a mess.' The National Institute of Economic and Social Research (NIESR) said earlier this week that Ms Reeves could have to find the equivalent of adding 5p to income tax to keep afloat by the end of the decade and meet her fiscal rules. To fill the hole and maintain the buffer, the Chancellor will have to find £51billion annually in higher taxes or lower spending by 2029/30.
The Sun
2 days ago
- Business
- The Sun
Huge tax crackdown on saving accounts approved by Rachel Reeves – what it means for you
RACHEL Reeves has approved a huge tax crackdown that will hit savers. The chancellor's new rules mean banks could be forced to share more of their customers' financial details, as part of plans to make it easier for the Government to collect taxes. 1 Under the plans, banks will need to ask new and existing customers with savings accounts for their National Insurance numbers from April 2027. This will make it easier for HMRC to bill savers who have breached their personal savings allowance. Most people have a personal savings allowance that lets them earn up to £1,000 in interest on their savings without paying any tax. However higher-taxpayers have a lower allowance of £500 and additional-rate taxpayers don't get a tax-free allowance. Savers typically breach the personal allowance with just over £16,500 in savings, according to wealth firm The Private Office. It's estimated 2.54million people will have to pay tax on their savings in the current tax year. That's up from just 647,000 in the 2021/2022 tax year. But HMRC has said it's unable to get hold of taxpayer data properly in about a fifth of cases - meaning there could be millions of pounds worth of tax that doesn't get collected. The chancellor is hoping to boost Government funds after a report by the National Institute of Economic and Social Research (NIESR) suggested she must find £50billion worth of revenue or cuts. The plans to require banks to share more customer information will be introduced in legislation next year. What Does My Tax Code Mean? A Simple Guide to Your HMRC Letter They would see more workers pay savings tax directly from their pay packets without submitting a self-assessment. Customers applying for current accounts will not need to share extra data. The Government admitted this would mean "significant costs" of approximately £35million. Banks have also warned it could cost them as much as £10million to make the change, and that it could take years to implement. Millions could be hit with unexpected tax bills HMRC is expecting to collect more than £6billion in tax from savers this tax year. In what's being dubbed a "tax by stealth", more people are being dragged into the tax net without any policy change. More people are being forced to pay tax on their savings because interest rates have soared and the Personal Savings Allowance (PSA) has been frozen for over nine years. Many won't realise they have breached their allowance until they see their pay packets decrease. If you file a tax self-assessment then you will need to declare any interest earned, but for others HMRC will collect the data directly from your payslip by adjusting your tax code. You should get a letter from HMRC if your tax code has been changed. People are more likely to have breached the tax-free limit if they've moved their money to accounts with high interest rates. Figures disclosed to AJ Bell suggest the average person is paying £2,300 in tax on their savings. What you can do to avoid paying tax on your savings If you want to avoid paying tax on your savings interest, the best way to shield your money is to put it into an ISA account. These accounts let you save up to £20,000 per year without having to pay any tax on the interest you receive. They're also a great option because they've got highly competitive interest rates. There are five types of ISA: Cash ISA, Stocks and Shares, Lifetime ISA, IFISA and Junior ISA. The most commonly used ones are Cash, Stocks and Shares and Lifetime ISAs. A Cash ISA is very similar to a normal savings account, but with the added bonus of being able to save money tax-free. Stocks and Shares ISAs allow you to invest into the stock market, so these are more risky but they can give greater returns if you're willing to keep your money locked away for longer. Lifetime ISAs can be used if you're saving up for buying a home or for retirement.
CNBC
3 days ago
- Business
- CNBC
The UK government won't admit it, but tax rises are coming — and there are no good options
The U.K. government is loathe to admit it, but economists say it's highly likely that the Treasury will have to hike taxes in the fall if it is to bung a black hole in the public finances that it has effectively created for itself. The National Institute of Economic and Social Research (NIESR) is the latest economic think tank to warn that taxes would have to rise later this year if British Chancellor Rachel Reeves is to meet her self-imposed "fiscal rules." These rules target both a balanced or budget surplus by the end of the decade — with the so-called "stability rule" requiring that day-to-day spending is funded by tax revenues rather than borrowing — and that debt, as a proportion of GDP, should be falling by the end of this parliament (in 2029-30), aka the "investment rule." "The Government is not on track to meet its 'stability rule', with our forecast suggesting a current deficit of £41.2 billion in the fiscal year 2029-30," NIESR said in an economic outlook released Wednesday. "Substantial adjustments in the Autumn Budget will be needed if the Chancellor is to remain compliant with her fiscal rules," it added in the report. With the government having fixed its spending plans for the next couple of years in its recent Spending Review, "the only lever available is to raise taxation in a moderate but sustained way," the think tank said in the report titled "the Chancellor's Trilemma." The 'trilemma' refers to the bind Reeves finds herself in thanks to her own fiscal rules, tax and spending commitments made over the last year and the Labour Party's manifesto promise to not raise taxes on "working people." "Simply put, the Chancellor cannot simultaneously meet her fiscal rules, fulfil spending commitments, and uphold manifesto promises to avoid tax rises for working people. At least one of these will need to be dropped – she faces an impossible trilemma," NIESR said. It's worth noting that NIESR's forecast for the budget deficit could be even higher, at around £51.1 billion, if Reeves wants to keep around £9.9 billion's worth of fiscal "headroom" that the Treasury had planned for, but which has been slowly eroded after U-turns on welfare reforms and winter fuel payment cuts for pensioners. "For the Chancellor to really shift the dial and build a reasonably sized buffer against her fiscal rules, she will have to look at either raising VAT or raising income taxes. VAT is the least distortionary tax but is also the most regressive. So, rises in income tax rates are likely to be the best answer, as we have previously argued," NIESR said, but added that there were few palatable options for the chancellor. British Prime Minister Keir Starmer was asked about the NIESR report on Wednesday, and the suggestion that tax rises would be necessary, but said he did "not recognise" the figures. Nonetheless, he declined to rule out hiking VAT, income tax and corporation tax in the fall, Sky News reported. "Some of the figures that are being put out are not figures that I recognise, but the budget won't be until later in the year, and that's why we'll have the forecast then and we'll set out our plans," he said. NIESR said Chancellor Reeves faces "unenviable decisions" for the Autumn Budget, when she will unveil taxation and spending plans for the year ahead. "Unfortunately, the most politically acceptable choices for tax increases would either raise very little revenue or would have large distortionary effects, or both," the think tank said, suggesting some measures — such as extending income tax thresholds — would "particularly affect poorer households." Other measures, such as cutting the current £20,000 tax-free cash ISA allowance, or increasing the rate of capital gains tax, could disincentivize saving, the think tank warned. The government could also reverse cuts to employees' national insurance contributions (NICs) but "while this would generate significant revenue over the parliamentary term," it would again breach the manifesto pledge not to raise taxes on working people, and could have strong "distortionary effects via discouraging job creation and so would likely increase unemployment." When Reeves announced her government budget last fall, she unveiled a £70 billion boost to public spending to be funded by higher borrowing and £40 billion in tax rises, which mostly hit British businesses. At the time, she insisted it was a one-off move, telling lawmakers that "we're not going to be coming back with more tax increases, or indeed more borrowing." Reeves could potentially adjust corporation tax rates and allowances which could also raise significant tax revenues, but this would run contrary to her previous pledge to cap corporation tax at 25% for the lifetime of the parliament. It would also likely have a negative effect on business confidence, which has already taken a hit after a hike to employer NICs that took effect in April.
