"The Treasury assumes taxes will need to rise by £30 billion, with the Office of Budget Responsibility expected to lower its forecasts for Britain's productivity growth. Each percentage point of growth is worth about £10bn in tax and the OBR is expected to lower its forecast by 0.2%. On top of that the government needs to cover the cost of lost revenues when MPs rebelled against welfare reforms. Finally, higher debt interest payments due to rising gilt yields have added to the burden."
"It seems highly unlikely that the Chancellor would dare to tweak her fiscal rules as the reaction in the bond market would be instant and damaging. Any change would likely be seen as credibility-busting and implies higher borrowing. However, reducing demand in economy through tax increases and spending cuts will mean weaker growth and a higher deficit, which could also be punished by the bond market."
The UK Budget on 26 November faces a roughly £30bn fiscal black hole requiring policy adjustments. The government has committed not to raise income tax, national insurance or VAT, narrowing the available levers to close the gap. The Treasury expects taxes to rise while the OBR will likely lower productivity forecasts, each percentage point of growth worth about £10bn in tax revenue. Additional pressures include lost welfare-reform revenue after MPs rebelled and higher debt interest from rising gilt yields. Altering fiscal rules risks an immediate bond-market backlash. Fiscal tightening could slow growth, raise the deficit and weaken sterling, affecting investors and markets.
Read at London Business News | Londonlovesbusiness.com
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