The Government is reportedly planning a tax raid on banks and oil companies to plug a £4.7billion hole in public finances. Prime Minister Andy Burnham, who faces the Commons for the first time on Wednesday, is expected to target these sectors with a new levy.
Treasury under pressure
The Treasury is reportedly stretched by rising gilt rates triggered by Donald Trump's war with Iran, while also seeking cash to spend on defence in the face of a threat from Vladimir Putin's Russia. Chancellor John Healey is said to be keen not to repeat the mistakes of his predecessor, Rachel Reeves, who was criticised for targeting small businesses and the general public with tax hikes.
According to Bloomberg, one official said Mr Healey and Mr Burnham want to go after the "low-hanging fruit" of the banks and oil companies who have enjoyed substantial profits. The Telegraph reports the Treasury has been eyeing BP profits, which more than doubled during April and June because of soaring oil prices triggered by the Iran conflict. A "windfall tax" on British banking giants is also being considered.
Whitehall divisions
A source told the paper Mr Healey is backed by Number 10. They said: "The Treasury position has never wavered – that there is less money to play with than we would like and we have to be really careful about spending taxpayers’ money."
"There is an inter-Whitehall war going on between those who have to make the sums add up and the rhetoric." UK Finance, the financial industry's trade association, has warned against any "damaging" raid on the City.
Borrowing rises
The new Chancellor, ahead of his inaugural Budget, faces official figures showing Government borrowing unexpectedly rose to £1.8billion last month. The Office for National Statistics (ONS) said this was £700million or 68.7% higher than a year ago.
The hike came despite a record July for income tax receipts. Inflation also surged to a four-month high of 2.9% in July amid the fallout from the Iran war. Experts, including the National Institute of Economic and Social Research (NIESR), have warned Mr Healey that he will need to either raise taxes or cut spending elsewhere as pressure on the public finances has left no room for extra borrowing.
A Treasury spokesman said: "The Chancellor is fully focused on his priorities, which will boost business, help with the cost of living and support people in every postcode." "As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on proposals made."
