R
ecently, I asked a senior City economist if he thought there was an impending risk of a British debt crisis. Government borrowing surged far above forecasts in August and Labour MPs have refused even a moderate cut to the welfare bill. But the City man gave a swift “no”. I asked why. With a shrug he said, as if it were the most obvious thing in the world: “They’re going to put up taxes.” Sometimes, the clearest view of Westminster is from the City.
He didn’t just mean little fiddling taxes. He meant one of the big ones. There are only three taxes that count when it comes to filling big fiscal holes. Income tax, VAT and national insurance account for two thirds of government revenue. You cannot move the dial without tapping one of them. They are also the three taxes Labour promised not to raise.
Rachel Reeves already broke her promise once by putting up national insurance but she did so in a weasel-worded way, extracting cash from employers’ contributions so it doesn’t appear on your monthly payslip. That won’t cut it this time.
For one thing, the highly targeted nature of that tax rise has whacked job creation. It also seems to have helped push inflation back up when it had been falling, not helpful for government borrowing costs. And even if she wanted to repeat last year’s trick, Reeves can’t raise enough money by tapping such a narrow stream.
