Will the UK spending review lead to autumn tax rises? Have your say
Chancellor Rachel Reeves is due to deliver the outcome of the UK government's spending review on Wednesday, 11 May, setting out departmental budgets for the next few years.
The review will set out the day-to-day spending on public services, such as the NHS and schools, as well as planned areas of investment, including infrastructure and research.
Health and defence are expected to be among the "winners" from Wednesday's spending review. In addition, the government said on Sunday that Reeves would unveil an £86bn boost for funding research and development in her announcement on Wednesday.
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However, the government faces a tough fiscal situation and the Institute for Fiscal Studies (IFS) warned last week that "sharp trade-offs are unavoidable".
"A more generous NHS settlement, or going further and faster on defence spending, would make cuts to other public services even more likely," the think-tank said.
"Within the category of 'unprotected' departments, larger increases for some areas – prisons, say, which face well-publicised challenges – would mean less (i.e. bigger cuts) for others."
In a note on Friday, Ruth Gregory, deputy chief UK economist at Capital Economics, said that the spending review would "shine a light on the tight fiscal position. And Reeves' problems are far from over. U-turns on benefit spending and higher borrowing costs may mean to maintain the current buffer against her fiscal rules Reeves has to raise £18-46bn in the autumn budget."
Gregory said in a separate note that those U-turns on benefit and welfare spending, along with increased pressure to ramp up defence spending and higher borrowing costs, had left Reeves in a "sticky position".
"If she wishes to avoid a political backlash and/or an adverse reaction in the financial markets, she probably has little choice but to raise taxes in the autumn budget," Gregory said.
In addition, Sarah Coles, head of personal finance at Hargreaves Lansdown, said: "If a potential funding gap emerges [from the spending review], there's going to be speculation that taxes could be hiked to close it.
"The government very broadly has two options when it comes to fund raising from taxes. It could make a whole host of smaller tax tweaks – all of which could cause their own problems, or it could tackle a major tax, which would be politically risky."
Do you think the spending review could open the door to tax rises being announced in the autumn budget? Vote in the poll below.
Yahoo UK's poll of the week lets you vote and indicate your strength of feeling on one of the week's hot topics. After the poll closes, we'll publish and analyse the results each Friday, giving readers the chance to see how polarising a topic has become and if their view chimes with other Yahoo UK readers.
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