By Karl Matchett

Copyright independent

Tax rises in the Budget are “all but certain” as a result of the extra government spending, says Lindsay James, investment strategist at Quilter.

The deficit is now estimated at £62bn and with the economy simply not growing, it’s a big problem for Rachel Reeves to fix in her November statement.

“Once again the UK government’s borrowing for August highlights why it seems all but certain that tax rises are coming at the Budget in two months’ time,” said Ms James.

“The ONS has put August’s borrowing figure at £18bn, putting the budget deficit for the financial year to date at £62bn, £13.8bn higher than the same time last year. This was the highest level of borrowing in August for five years, when we were still dealing with the fallout of the first pandemic lockdown. These figures are staggering and are not showing an economy that is in rude health.

“It is clear that further borrowing is not an option and with the UK currently suffering from a yield premium compared to the rest of the G7, the markets are demanding additional reward for providing funds to the government. Indeed, the government has a litany of fiscal pressures outside of the now familiar low growth environment we find ourselves in. Productivity is likely to be downgraded when we get to the Budget, while higher and persistent inflation is pushing up index linked costs.

“The UK economy without a doubt is bending, but likely will not break yet. However, the remedy will need to be harsh, something politicians on all sides appear reluctant to accept. Labour is likely to go down the route of raising more taxes, particularly on wealthier individuals. But the economic growth effects this has will not be positive. Meanwhile, this government has shown it is incapable of driving through necessary spending cuts, when in reality there needs to be a mix of the two.”