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A leading economic think tank has warned that the UK government may have to increase taxes or cut spending if it does not want to miss its own self-imposed rules. The government is currently spending £7bn more annually to pay interest on its debt. The Resolution Foundation reported that higher tax or cuts may be necessary if the government wants to ensure that it does not spend more day-to-day than it makes through tax.
A Treasury spokesperson stated that its promise to its fiscal rules is non-negotiable. The report comes after Chancellor Rachel Reeves released her proposed plan, which would boost the economy by supporting an array of infrastructure projects, including a third runway at Heathrow. Following last autumn’s budget, government borrowing expenses began to increase. The increase has been primarily driven by international factors as US and European government debt rose.
Several economists have stated that higher borrowing costs may be a reaction to poor growth in the UK economy. Nevertheless, the Resolution Foundation highlighted that the risk of the government breaching its fiscal rules is high, mainly because borrowing costs are still higher than they were in the autumn. Resolution Foundation research director James Smith stated that Chancellor Rachel Reeves will have to meet the fiscal rules or risk further market jitters.
He further expressed that whilst the chancellor is concentrating on outlining her long-term economic growth strategy, making difficult decisions in the short term, including implementing new tax increases or cutting spending, may be essential to display her dedication to sustainable public finances. The government wishes to decrease waste, and taxes may be raised. Reeves previously stated that departments would be asked to suggest 5% efficiency savings as they formulate their budgets over the coming years
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