Tax rises ‘increasingly likely’, warn economists as Healey unveils growth plan

The Chancellor will today insist the economy is “turning a corner” as he unveils his plan to push growth to Britain’s regions, amid warnings he will have to raise taxes to balance the books. John Healey will promise discipline with the public finances, while arguing the Government’s plan for greater public control will help boost investment and growth in “every postcode”, as he seeks to reassure business and jittery financial markets. But economists warned that while Andy Burnham’s plan to send powers and cash around the country may boost economic growth in the long-term, the Chancellor is likely to have to raise taxes in next month’s Budget to maintain credibility with the markets. Healey’s speech on Monday is designed to set the stage for the Budget – a key moment for Burnham’s nascent Government – on 28 October. It comes after a surge in Britain’s borrowing costs last week – part of a global rout on bond markets – led to claims that Healey’s spare cash against his so-called fiscal rules to deliver a balanced Budget had been halved from £24bn. It also follows criticism of Burnham from his ally, the senior economist Lord O’Neill, who said the PM’s Commons statement last week “implying a lot more government spending to take control of X, Y and Z is the last thing that investors want to hear”. The Chancellor will look to take on these concerns by promising to balance the books, while saying Burnham’s plans for devolution and more public control will work hand-in-hand with business. £150m for businesses in North He will announce £150m in British Business Bank funding for innovative companies in the North of England to grow, saying the public investment will attract further cash from the private sector. And he will direct public finance institutions like the investment bank and National Wealth Fund to go further in boosting growth in Britain’s regions. “The Prime Minister laid out a clear diagnosis of what has gone wrong in the past. The solution is a fundamental shift that starts with putting power in the right places,” Healey is expected to say. “Instead of getting in the way with complexity and red tape, we need a strong, strategic centre wired to enable local leaders and their ambitions.” Healey will go on: “This is new. City regions with real power, supported by a stronger state, creating local industrial strategies and using public investment to unlock private investment, to support our innovation economy, and to create the new jobs their areas need.” This economic growth will help Britain face a more uncertain world, Healey will argue, promising: “A new story about Britain. An optimistic story. One of resilience. Pride. Huge latent potential. A country turning a corner. A country whose people, businesses and communities are ready to seize the opportunity of new technologies and new ideas.” Bank tax or raising capital gains among options, economists say Economists have warned that Healey would likely have to hike taxes next month. Professor Edward Jones at Bangor University, told The i Paper that “further fiscal tightening” – tax rises or spending cuts – was increasingly likely in Healey’s Budget. The Chancellor may have to find between £10bn to 15bn at the Budget to restore fiscal headroom back to around £24bn to reassure bond markets, Jones said. “These sort of regional reforms could increase growth in the long-term, but unfortunately, we’re not going to see the effects this year or next year. Having extra powers is one thing – but the regions need far greater financial resources to boost growth.” Healey may have to consider “a combination of both tax raises and spending cuts so the market has confidence that a buffer is there if there’s another economic shock”, said Prof Jones. “A bank tax would help fill the gap. It might just be possible to do something that doesn’t spook the banks and markets too much. He could look at raising capital gains. But they can’t introduce taxes that will stifle growth.” Vicky Pryce, the former joint head of the UK’s Government Economic Service, welcomed Healey’s reforms aimed at helping the regions access more infrastructure investment. However, she warned Healey’s changes were “not necessarily going to lead to any gains in the short-term”. Conservative shadow chancellor Andrew Griffith said Healey’s promises on regional growth “will do little to comfort hard-working families and businesses across the country who are worried about more tax rises or the fact that government borrowing rates are near a 28-year high”. Reform Treasury spokesman Robert Jenrick said that “even Rachel Reeves had more vision than this guff”, while claiming that that “taxes on working people will inevitably rise at the budget” because Healey “won’t cut the ballooning benefits bill, foreign aid, or net zero subsidies”.