A group of economists have warned that the Treasury is likely to raise taxes even further this year, despite an expectation that the country will return to growth in 2025.
The Financial Times’ survey of 96 leading economists found that, while the UK is likely to outperform France and Germany in 2025, previously announced tax rises could undermine the economy.
It comes after the chancellor unveiled a record £40bn worth of tax rises at the Autumn statement in October, including an increase to employers national insurance contributions.
Most of the economists surveyed expected a low rate of economic growth this year, less than the 2 per cent rebound the Office for Budget Responsibility forecast for 2025.
It comes after a major survey by the Confederation of British Industry (CBI) last month found firms are expecting to reduce both output and hiring, adding to the wider picture of a jittery economy.
The chancellor’s hike to employers’ national insurance, which is expected to rake in around £25bn a year, was highlighted by the CBI as one of the reasons for the gloomy outlook. Alpesh Paleja, the CBI’s interim deputy chief economist, warned the economy is “headed for the worst of all worlds”.
Official figures showed the UK economy unexpectedly contracted in October this year, marking two months in a row of negative growth for the first time since the pandemic.
The rate of consumer price index (CPI) inflation rose to 2.6 per cent in November, its highest level since March and the second monthly increase, while the Bank of England held interest rates at 4.75 per cent as it cautioned over “heightened uncertainty in the economy”.
Maxime Darmet, senior economist at Allianz Trade, warned that this year’s growth “will undershoot the government and the OBR’s forecasts”.
“Therefore, tax receipts will probably undershoot as well”, the economist said.
Almost all the economists warned that Ms Reeves will be forced to hike taxes again before the next general election.
Andrew Oswald, professor of economics and behavioural science at Warwick university, said there would be “a dawning realisation . . . that without income tax and VAT rises, we cannot make the damn sums work”.
Ms Reeves has previously defended her decision to raise taxes, insisting her plan provided the stability needed to secure growth.
“Now we have fixed the foundations of our economy, I am going for growth”, the chancellor said after the October fiscal event.
“Because we cannot tax and spend our way to prosperity, nor can we tax and spend our way to better public services. Instead, we need economic growth and we need economic reform.”
Speaking at a CBI event, she also said the government had no alternative solution.
“I have heard lots of responses to the government’s first Budget but I have heard no alternatives,” she said. “We have asked businesses and the wealthiest to contribute more. I know those choices will have an impact.
“But I stand by those choices as the right choices for our country: investment to fix the NHS and rebuild Britain while ensuring working people don’t face higher taxes in their payslips.”
A Treasury spokesperson said: “We delivered a once in a parliament Budget to wipe the slate clean and deliver the stability businesses so desperately need.
“We have ensured more than half of employers will either see a cut or no change in their National Insurance bills, and by capping the rate of corporation tax, establishing a National Wealth Fund, and creating pension megafunds, we are bringing back political and financial stability, creating the conditions for economic growth through investment and reform.
“This is just the start of our Plan for Change which will get Britain building, unlock investment, and support business so we can make all parts of the country better off.”
