Chancellor John Healey has said he will deliver his first Budget on Wednesday October 28, 2026.
The announcement comes after Labour announced a succession of spending commitments, including the £2 bus fare cap, reforms to social care and the temporary removal of VAT from electricity bills.
Economists have suggested these spending commitments will need to be met with higher taxation, with No. 11 having very little room for extra borrowing within the current fiscal rules.
Prime Minister Andy Burnham has faced growing pressure to raise income tax after a leading economic think tank identified a £24billion shortfall in the Government’s spending plans.
The National Institute of Economic and Social Research (NIESR) warned that persistent inflation is rapidly eroding the real value of planned spending on public services, including hospitals and schools, through to the end of the decade.
The think tank said the Government should increase income tax to close the funding gap, a move that would break Labour’s commitment made to voters at the 2024 General Election.
Its findings leave Mr Burnham and Chancellor John Healey facing a choice between finding billions of pounds in additional revenue or accepting real-terms reductions to departmental budgets.
NIESR forecasts inflation will reach 3.8 per cent by February 2027 and does not expect it to return to the Bank of England’s two per cent target before 2029.
Stephen Millard, deputy director at the National Institute of Economic and Social Research, said: “Corporation tax in particular has a negative effect on growth.
“Increases in VAT have effects on expenditure and demand, so you probably don’t want to be increasing that at a time when demand is possibly weakening anyway.
“And, of course, VAT is highly regressive, it affects poorer people much more.”
Mr Millard added: “Rises in income taxes do have some effect on growth, but the effects tend to be very small.”
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