Labour Could Cut Taxes by £16bn, Say Economists

Economists from Capital Economics predict that Labour could benefit from a £16 billion spending boost if it wins the upcoming General Election, thanks to updated forecasts from the Office for Budget Responsibility (OBR).

This potential fiscal headroom is nearly double the £8.9 billion announced in the March Budget.

Rachel Reeves, Labour’s shadow chancellor, could use this revised forecast to either reverse some planned spending restraints or address the freeze on personal tax thresholds, though likely not both simultaneously.

The OBR’s improved borrowing forecast, revised downward by about £5 billion annually over the next five years, is attributed to increased tax revenues driven by recent wage growth. This shift provides the next government with an opportunity to reassess its fiscal strategies.

If Capital Economics’ predictions hold, the next chancellor might have a fiscal headroom as large as £27 billion, assuming further-than-expected interest rate cuts and higher-than-anticipated tax revenues from elevated house and equity prices. However, the OBR’s forecast could vary significantly, presenting a range of scenarios from a £13 billion deficit to a £38 billion surplus, equating to 1.4% of GDP.

Deputy chief UK economist Ruth Gregory noted, “Overall, as things stand, we suspect the next government may be handed a bit more fiscal space by the OBR. But it probably won’t have enough fiscal headroom to do everything it wants all at once.”

Gregory emphasized that economic developments and the OBR’s forecasts will significantly influence the available fiscal headroom, alongside the new government’s willingness to raise taxes to fund additional spending beyond what the fiscal space allows.

The potential fiscal flexibility comes amid discussions on how to best utilize the projected surplus to balance spending and tax cuts, reflecting broader economic conditions and strategic priorities of the next administration.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular

Your daily news source covering investing ideas, market stocks, business, retirement tips from Wall St. to Silicon Valley.

Disclaimer:, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice.
The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2024 GroovyTrades. All Rights Reserved.

To Top