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Monday, October 25, 2021

Social care tax ‘must double’ to tackle crisis

Mr Emmerson said: “One option would be to continue to increase the new Health and Social Care Levy, but if you wanted to get £19bn extra from that you would need to more than double its rate.”

He added that the Government is “finding it hard to make cuts elsewhere given how much we have cut already”.

The IFS also raised concerns about surging inflation. Analysis for the think tank by Citi predicts that the Consumer Price Index will hit 4.6pc next year, its highest level in a decade, as soaring energy costs and a supply chain crisis bite.

The Bank of England is likely to respond by putting interest rates up to 0.5pc by August, Citi economist Christian Schulz said, and the combination of higher rates and prices will push up the Treasury’s debt interest payments by £15bn a year.

Mr Schulz warned that the Bank of England may be making a mistake if it raises interest rates too soon.

He said: “It would be best to try to boost the economy, even if there is a bit of inflation overshooting in the meantime. If you do not do that, if you hike too early, you will not get very far.

“Our view is that the Bank will be stuck at 0.5pc after that and we will not see any further rate hikes.”

The threat of a new tax increase comes as 90pc of consumers worry about the pressure of rising prices on their household finances, according to data from Barclaycard.

Mr Emmerson said the Government finances are benefiting from the strong economic recovery, with the deficit this year expected to fall to £180bn, around £50bn lower than predicted in March.

But the finances remain very sensitive to rates, particularly if the economy fails to recover to the growth trajectory predicted before Covid struck.

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