Our independent forecaster is likely to downgrade the forecast for productivity in the UK based not on anything this government has done, but on our past productivity numbers, which, to be honest, since the financial crisis and Brexit have been very poor, and that just shows how essential growth is. So I'm not going to do anything in the budget that reduces our opportunities to grow the economy. That's very important.
For the first six months of the financial year, total borrowing now stands close to £99.8bn, 13.1% higher than at the same point last year and on course to overshoot the OBR's March forecast. The rise reflects a toxic mix of high debt interest payments, still-inflated public sector wage costs, and weak tax receipts from income, property, and corporate profits. Meanwhile, sluggish GDP growth is keeping revenue subdued, even as spending on health, education, and local services remains under pressure.
Britain's leading tax and spending experts have urged Rachel Reeves to consider announcing billions of pounds in welfare cuts in next month's budget to help placate jittery financial markets. After the chancellor gave her strongest hint yet that spending cuts were under consideration, the Institute for Fiscal Studies (IFS) called on Reeves to take bold action to plug a potential 22bn shortfall in the government finances.
At the moment the chancellor gives away more than 50bn in tax relief for pension saving, most of which goes to wealthier boomers and better-paid gen Xers who do not need the money and would save anyway if state support was more limited. A remodelling of pension subsidies cutting the 40p higher rate to a flat rate of 25p for all savers could claw back 10bn to 20bn in extra income tax and national insurance payments, depending on how the new regime is constructed.
A huge proportion of the tax gap is attributable to small businesses (60% or approx. £. Sole traders do not have to register with Companies House and it is likely that plenty fly under HMRC's radar. Even small businesses which are companies, although they need to be registered at Companies House, have significant exemptions in the level of detail that they are required to submit in terms of their accounts.
Rachel Reeves could consider cutting the amount savers are allowed to withdraw in a lump sum from their pension pots as she seeks to plug a multi-billion-pound hole in the public finances. The chancellor will look at proposals from civil servants that could raise around 2bn by lowering the limit on how much people are allowed to take out of their pension without paying tax. Currently, pensioners can take out a quarter of their pension pot tax-free, with a cap of 268,000.
Sir Keir Starmer has opened the door for the Labour government to unleash both wealth taxes and an extension of stealth taxes in a bid to balance the books following his welfare U-turns.
