Creative thinking needed to tackle the financial challenges ahead
The Chancellor will have to perform the ultimate high-wire act over the next few months when it comes to managing the nation’s finances.
The reality is that raising taxes on ordinary people will go down like a lead balloon. Businesses are also feeling the burden of tax rises in the Chancellor’s budget last year.
There are very few places left for Rachel Reeves and Labour to turn.
A degree of sympathy and understanding has to be afforded to the Chancellor, given the state of the finances Labour inherited. But raising taxes will go down like a lead balloon in all quarters.
Creative thinking is going to be required in order to start bridging the gap in public finances.
While many within Labour’s ranks may not like the sound of it, the Government could well take inspiration from Margaret Thatcher and raise up to £8bn a year for public services.
Think tank Institute for Public Policy Research (IPPR) makes an interesting argument for Ms Reeves to tax bank windfalls to recover taxpayer money spent on compensating losses from the Bank of England’s quantitative easing (QE) programme.
A “QE reserves income levy” would be similar to the 2.5 per cent deposit tax imposed on banks under Margaret Thatcher in 1981.
While this may look like a good idea on paper to many, it is important that it doesn’t come at the expense of investment. The financial sector is a key pillar of the economy.
The IPPR also calls on the Bank of England to slow down its sale of bonds to save more than £12bn a year.
The nation finds itself in an unfortunate position. The reality is that a lot of ordinary people are feeling the squeeze. And any tax rises need to result in better public services.