The Brief: Rishi Sunak has announced that all citizens will be paying more tax, especially the wealthy ones, so the country can restore its public finances’ stability. The PM met with finance minister Jeremy Hunt yesterday to prepare for the government’s economic statement on November 17th. Bloomberg reports that the Institute for Public Policy Research (IPPR) is proposing £40 billion worth of taxes for the rich to help reduce inflation, which would slow down the Bank of England's (BoE) interest rate hikes.
Why It Matters: With the BoE most likely to make its largest single interest rate hike in 33 years by 0.75 percentage points in the next two days, those securing new mortgages or whose fixed rate mortgages will soon expire will be struggling to pay their borrowing. Morgan Stanley estimates that 4 out of 10 homeowners will be unable to afford loan rates at 6%. Sunak's taxes will add another blow to household finances.
Finanze® Foresights: New mortgage applicants will find it harder to get a foothold on the property market now that mortgage rates are likely to rise after the BoE’s announcement this week. Sunak’s announcement yesterday did not reflect his proposals during the election campaign where he promised to “get the tax burden down”. Back in March when he was still the finance minister, he froze income-tax thresholds that resulted in a fiscal drag (or more households moving into higher tax brackets). And he will likely keep tax bands in the coming years to raise government revenues and finance the £40 billion that IPPR is proposing. But while he and Hunt assured that income tax and VAT hikes are not an option, household real incomes still fall behind soaring prices of goods and services, which make the gap between renters’ wages and housing affordability much wider, dashing any hopes of home ownership.
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