Finance Secretary Rachel Reeves indicated that future tax increases are possible after the UK economy contracted by 0.3% in April. This decline was the worst performance in 18 months. The economic downturn was caused by increased taxes on businesses, rising household bills, and a sharp drop in exports to the US.
… Economists have warned that if growth remains stagnant, the government may be forced to raise taxes later this year to balance spending.
Reeves, pointing to these disappointing figures, said he could not rule out tax increases during his Budget presentation in the autumn. Speaking to the BBC, he said, “No finance minister can project a four-year budget in a single year given the uncertainties around the world.”
April data shows a contraction in the economy, but the three months leading up to April point to a more stable average growth of 0.7%. Paul Johnson, Director of the IFS (Institute for Fiscal Studies), and Ruth Curtice, CEO of the Resolution Foundation, emphasized that weak growth is likely to lead to higher taxes.
Reeves prioritized long-term infrastructure investments under the Spending Review; however, since most of these projects will take years to complete, daily spending budgets have been tightened. Local government taxes are expected to increase, and opposition parties have criticized the government, arguing that previous tax increases hindered growth.
Car production was particularly hard hit in April. The 25% tariffs imposed on vehicles exported from the UK to the US resulted in a £2.7 billion drop in exports. However, trade agreements with the US, EU, and India aim to resolve this issue.
Businesses are under pressure due to rising National Insurance contributions and other costs. Some business owners, such as Ollie Vaulkhard, head of the Vaulkhard Group in Newcastle, say they have been forced to raise prices because of this pressure.
Opposition figures, such as Shadow Chancellor Mel Stride, criticize Reeves’ approach, warning that further tax increases are inevitable if the economy does not recover.
