A Cabinet minister has warned there will be “consequences” from recent weaker economic forecasts at this month’s Budget as he declined to repeat Labour’s promises on tax.
Defence Secretary John Healey insisted no decisions had been made on the final shape of the Budget, due to be delivered by Rachel Reeves on November 26.
But he added that the Office for Budget Responsibility (OBR) now saw much worse “scarring” on the economy than previously thought and the Chancellor would make “announcements to deal with those challenges”.
And asked whether the Government would stick to its manifesto pledge not to raise income tax, national insurance or VAT, Mr Healey declined to repeat the promise.
He told Sky News’s Sunday Morning With Trevor Phillips programme: “That’s for the Budget and that’s for the Chancellor to announce at the end of the month.”
Pressed further on Labour’s tax commitment, he added: “No decisions have been taken about the Budget, even the Office of Budget Responsibility hasn’t produced its final figures.
“But what we do know is that they now see the deep damage and scarring to be much more serious than previously thought, a combination of years of cuts, Covid and really slow economic growth over 14 years.
“So there are consequences. Things do change, and we’ll have the announcements that are needed to deal with those challenges in the Budget.”
But he insisted that Ms Reeves’s announcement would stick to her “fiscal rules”, take steps towards easing cost of living pressures, and “drive stronger economic growth”.
His comments follow a week in which the Prime Minister himself failed to repeat Labour’s pledge amid speculation that Ms Reeves is planning to increase income tax.
The OBR is widely expected to downgrade its productivity forecasts for the UK at the end of the month, adding as much as £20 billion to the Chancellor’s costs if she is to meet her fiscal rules.
That comes on top of an already significant gap in her spending plans caused by higher borrowing costs, persistent inflation and spending commitments such as partially reversing cuts to winter fuel allowance and the U-turn on slashing the benefits bill.
The figure could end up even higher if she implements policies such as ending the two-child benefit cap and continuing the freeze on fuel duty.
Having pledged there will be “no return to austerity” in the form of deeper spending cuts, Ms Reeves is expected to increase taxes again at the Budget.
Economists have suggested that increasing income tax would be the most effective way to raise the money she needs, with the alternative solution of increasing many smaller taxes likely to do “unnecessary economic damage”.
