Analyst: UK taxes could rise further if Labour’s growth agenda fails | Real Time Headlines

LONDON – Suspicions are growing about the Labor government’s flagship grow and invest One analyst has warned that further tax hikes could come as soon as next year.

UK Finance Minister Rachel Reeves announced last week a series of reformsincluding measures to deregulate financial services and increase investment in pensions – the latest in a series of reforms aimed at achieving this The country’s economy is growing again.

In theory, higher rates of economic growth could increase government tax revenue without requiring further tax increases because overall revenue would be higher. However, Labor has a fine balance between keeping taxes high enough to fund the country’s depleting public services while leaving businesses with enough cash to invest and grow.

“The chancellor is really walking a tightrope on this,” ING economist James Smith told CNBC’s “Squawk Box Europe” on Friday.

“If these regulatory changes – not just in finance but in planning and other areas – if they don’t move the economy forward, I think we’ll look again at more tax increases,” he said.

John Grieve, the former deputy governor of the Bank of England, last week expressed doubts about the ability of these measures to stimulate economic growth, saying that neither financial services deregulation nor pension reform would be “game-changing”.

“I think she (Reeves) is going to have to do something bigger to stimulate private investment,” Gieff told CNBC on Friday, noting that planning and infrastructure projects were more likely to boost the economy.

The reforms come two weeks after Reeves’ bumper harvest tax and spending budgetThese include 40 billion pounds ($51.8 billion) in tax increases and changes to national debt rules – measures Reeves said were crucial to rebalancing Britain’s debt deficit widening.

The Independent Office for Budget Responsibility said then It believes these measures should boost the economy in the short term and raises growth forecasts for the next two years by a few percentage points while lowering long-term forecasts. The OBR currently expects UK real GDP to grow by 1.1% in 2024, followed by 2% in 2025 before falling to 1.5%.

However, businesses, which have been particularly hard hit by a huge increase in National Insurance payroll tax, say Labour’s plans are likely to Limit hiring and discourage investment.

“The real risk for the chancellor, but also for business, is that if we don’t see a growth response, then we’ll see more of the same in the next budget next year,” ING’s Smith said.

The Labor government did not immediately respond to CNBC’s request for comment on further possible tax reform.

The British economy barely grew in the third quarter and barely managed to stay below expectations 0.1% expansionData released by the National Bureau of Statistics on Friday. Gross domestic product (GDP) fell 0.1% in September, also lower than expected, after growing 0.2% the previous month.

“This is desperate growth. We’ve had 1% growth since the financial crisis, or about 1% now. That’s been 15 years. So this is an established trend and we need to Do something dramatic,” commented Giff. As far as GDP data is concerned.

The third quarter is a time of significant uncertainty for the UK, with the government accused of belittling the economy and scaring investors ahead of the October 30 budget.

As a result, some analysts believe the government’s fiscal plans, as well as its broader growth agenda, should be given more time to implement.

“Measuring success in the short term can lead to the entire effort failing before it even emerges,” Sarah Coles, head of personal finance at Hargreaves Lansdown, told CNBC via email on Monday.

Paul Dales, chief UK economist at Capital Economics, said the plans are likely to be measured over the coming months and years against whether growth succeeds in meeting the OBR’s forecasts – any Tax changes will come with it.

“If economic growth weakens, and this weakness is expected to persist, it may mean that tax revenues will need to rise further to reach expected tax collection levels,” Dales said in an email. He noted that Capital Economics predicts that economic growth will There is a rebound. He added that tax revenues would be expected to rise if there was pressure to further increase government spending, all else being equal.

Markets will now focus on whether the government’s reforms can inject growth into the sluggish British economy.

Still, Coles said tax increases were “extremely unlikely” until at least the next financial statement in March.

“There’s always the possibility that we’ll be hit by unexpected events that upend expectations, but at the moment Labor has committed to a major budget every year, so any earlier major budget would be a real surprise – especially at a time of such magnitude. events in October following the Budget,” Coles said.

“The coming months will give us a clearer picture of whether the government has struck the right balance.”