PM's vow to end austerity 'needs £25bn of tax rises'

Keir Starmer's promise to end austerity and rebuild public services will require tax increases of £25bn a year in the coming budget even if debt rules are changed to provide scope for extra investment spending, a leading thinktank has said.

- Larry Elliott

Keir Starmer's promise to end austerity and rebuild public services will require tax increases of £25bn a year in the coming budget even if debt rules are changed to provide scope for extra investment spending, a leading thinktank has said.

In its preview of the first Labour budget in 14 years, the Institute for Fiscal Studies (IFS) said Rachel Reeves would need to raise taxes to record levels to meet the government's policy goals.

The chancellor was also warned of the risk of a Liz Truss-style meltdown if the City responded badly to substantially higher borrowing.

The IFS said Reeves faced a challenge in finding £25bn of tax increases given that Labour's election manifesto ruled out raising income tax, employees' national insurance contributions (NICs) and VAT.

At prime minister's questions yesterday, Starmer was twice pressed by the opposition leader, Rishi Sunak, to rule out an increase in employer NICS - a move that would raise more than £8bn a year - but refused to do so. "We made an absolute commitment in relation to not raising tax on working people," the prime minister said. Pressed again, he added: "We set out our promises in the manifesto. We were returned with a huge majority to change the country for the better, and I stick to my promises in the manifesto."

In the run-up to the election, Labour outlined plans for £9bn of tax increases, but the IFS said that if Reeves wanted to increase spending on public services in line with national income she would need to raise a further £16bn to meet her rule that day-to-day spending should be covered by tax receipts.

"Given the pledges she has made not to raise the main rates of income tax and corporation tax, or to increase national insurance or VAT at all, she might struggle to implement a tax rise on that scale," the thinktank said.