Another major financial organisation has warned that whatever the outcome of the election, the UK is facing big tax hikes.
US heavyweight bank Goldman Sachs says such an eventuality is inevitable due to the losses caused by the Bank of England’s quantitative easing programme.
Higher borrowing costs due to the scheme will force the next chancellor (whatever her or his political colour) to raise taxes even more than expected.
Losses from QE will add an additional burden to what is already being forecast as a difficult time for the UK’s finances, argues the Wall St bank.
Recently, the Insitute of Fiscal Studies suggested Britain will have a back hole of £30 billion unless there is a miraculous economic recovery.
Goldman concurs: “With both major parties committed to getting debt falling as a share of output five years ahead, the next government will need to pencil in a sizeable consolidation to meet its fiscal target.
“The historical evidence suggests that the next government may well change the current plan for how to implement the consolidation, with both taxes and spending likely to be higher.”
Over the past thirty years, that ‘consolidation’ has meant higher taxes, whatever shade of party in power.
QE was set up after the financial crash in 2009 to ease financial institutions through the crisis, with the BoE buying almost £900 billion worth of bonds to add liquidity into the system.
Quantitative tightening or QT, the reverse policy of selling bonds, was introduced after the end of the pandemic but with interest rates soaring many of the bonds held by the BoE are now being sold at a loss with the gap made up by the government.
Jeremy Hunt provided £44 billion last year to cover the BoE’s deficit, with the government historically committed to cover any shortfall.
Goldman notes that both the Tories and Labour have ruled out raising income tax, National Insurance, or VAT, so more ‘innovative’ ways will be needed to raise money with the freezing of tax, which both parties have said will occur for three years, likely to be just the start.