Rachel Reeves is expected to announce a £26 billion tax increase in her budget to double her fiscal headroom, according to figures published ahead of her speech in the Commons.
In a highly unusual development that triggered an immediate reaction in financial markets, Office for Budget Responsibility (OBR) figures published on its website ahead of the Chancellor’s speech revealed that his measures would free up £22 billion of headroom over five years’ time.
The measures the Chancellor is expected to announce include a three-year freeze on the personal tax cap as well as removing the two-child limit on benefits.
In the spring, Reeves set aside £9.9 billion as a buffer. But hopes have been dashed by higher borrowing costs, a welfare U-turn and an anticipated sharper OBR productivity decline.
The Chancellor is expected to use her critical speech in the Commons amid intense pressure on the government to plug the hole in the public finances through a sweeping package of measures.
The surprisingly early release of the OBR document initially pushed government bond yields lower, as investors were pleased by the apparent increase in headroom.
Many more to follow…
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