£22 Billion Budget Black Hole: Brace for Potential Tax Rises

The Chancellor Rachel Reeves confirmed that the budget will be published on 30 October 2024. Reeves, in her speech to Parliament, set the expectations for a potentially disappointing budget.

The budget disappointment may come due to the government finances being in their worst state since the Second World War. The government is trying to fill a £22 billion “black hole” in public finances. So, tax rises and other provisions are potentially around the corner.

What Caused the Black Hole in the First Place?

The Chancellor accused the previous Sunak government of bringing about the current situation by making unfunded commitments. She said, “They covered up the true state of the public finance. And then they ran away.”

After an audit of the real spending situation, the projected overspending of the Conservative government appeared to be about £22 billion.

She also provided numerous examples of the overspending hidden by the previous government. Some of those include £6.4 billion for the asylum system and £1.6 billion in unfunded transport projects. She claims these unfunded commitments can lead to economic instability if left ungoverned.

During her time in the office, she says that she has already reduced the pressure on public finances by £5.5 billion a year. Also, she claims she will cover these unfunded budgets by £8 billion next year. Reeves further explains that the Autumn Budget’s main objective will be to fix the foundations of the UK economy and the budget is built on the principles that the new government was elected on.

As the date for the Budget is announced, individual and business taxpayers are anticipating tax rises to fill the government’s financial deficit. The Chancellor says the government will treat the taxpayers’ money with respect and make sure that every pound is well spent.

Will Taxes Rise to Meet the Deficit?

Before being elected, the government pledged not to raise taxes on National Insurance, VAT, or Income Tax. So, tax rises on these three might be unlikely. However, the said three tax schemes are the main ones for raising the most money, so the government has a challenge to cover the £22 billion gap.

One area which could potentially be included in the Budget is ending VAT exemption on private school fees. The government plans to raise £1.5 billion by imposing VAT on private school fees. The VAT will apply at a standard rate of 20% and will come into effect from 1 January 2025. VAT will also apply to pre-payment of fees.

The government may also investigate other areas such as Capital Gains Tax, Inheritance Tax, fuel duty, which has been frozen at 5% since 2011, and many more. Also, the government plans to use other alternatives such as closing the carried interest tax loophole, closing non-dom loopholes, closely monitoring tax avoidance schemes, and more to fill the funding deficits.

Conclusion

The Autumn Budget is confirmed to be published on 30 October 2024 by the Chancellor. She claims that due to the previous government’s unfunded commitments and overspending, the government finances are at their worst since the Second World War. The current government has a huge challenge, filling the £22 billion gap in public finances. The government plans to fill the gap by potentially raising taxes, closing tax loopholes, and more.