More taxes on way warns expert after shock UK economy downgrade

The Chancellor may have to raise taxes after the UK’s economic growth was downgraded following an unexpected revision to the GDP data during the three months ending September, a leading economist has warned.

The revision by the Office for National Statistics (ONS  showed that rather than growing during the third quarter of 2024 – July, August and September – the economy shrank by 0.1 per cent.

Paul Johnson, director of the Institute for Fiscal Studies (IFS)  was reported in the Telegraph as saying Reeves may have to put taxes up again next autumn despite having increased them by £40bn during her first Budget in October.

Mr Johnson who was speaking to Times radio said he did not expect a recession but added the Government faced some “tough choices” which included raising taxes further to fund public services.

The ONS adds that the household saving ratio – the percentage of a household’s net disposable income that is saved – is estimated at 10.1% in Quarter 3 2024, down slightly from 10.3% in the previous quarter.

Johnson added: “It’s not impossible that the Chancellor will feel she needs to come back for yet more money next autumn if the economy doesn’t pick up.

“Then, again, she’s stuck in this really difficult place – you increase taxes in order to fund public services adequately or because there’s no growth, you don’t have the money you need for the public services and you disappoint people on that front.”

Last month Rachel Reeves told business leaders she was not going to borrowing more or raise more taxes.

In October she committed the government to increasing public spending by £70bn increase. She unveiled an increase in the amount employer’s pay in National Insurance, as well as reducing the threshold they start paying it at.

Other moves included changes to inheritance tax which meant tax relief for farms would be limited to £1million, meaning all assets above that threshold passed down to the next generation would be taxed.