The latest borrowing figures underline what many of us already thought – that the government is almost certain to announce another set of tax increases at the Autumn Budget.
Given the country’s deepening economic malaise, high borrowing costs, and the government’s failure to implement even minor spending cuts, it is hard to see another way out – unless the Chancellor decides to relax her fiscal rules.
That, however, would risk an adverse market reaction, and could make a bad situation worse.
I expect that tax allowances and thresholds will continue to be frozen for years to come, even as inflation remains above target. Many more people are going to end up paying higher rates of tax without getting any richer in real terms.
But it seems unlikely that will be enough. The question is whether the government will drop its core tax pledge, and raise a broad-based tax like income tax, national insurance or VAT, or whether it will attempt another stealth tax raid, targeting businesses and savers.
Either course risks further depressing a weak economy. The better approach would be to build a consensus renewed spending restraint, while also making a much more concerted effort to pursue cost-free, pro-growth regulatory reforms.
