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\t\tJohn Healey is ‘more likely’ to raises taxes at the Budget. PA Wire\t<\/p>\n\t\t\tWednesday 02 September 2026 11:41 am\n\t\t\t<\/p>\n
\t\tJohn Healey is ‘more likely’ to raises taxes at the Budget. PA Wire\t<\/p>\n
Chancellor John Healey is likely to roll-out \u201clarge tax hikes\u201d at this year\u2019s Budget due to a rout in global bond markets pushing up the cost of government borrowing, economists have said.\u00a0<\/p>\n
A jump in the 10-year gilt yield<\/a> to the highest level since August 2027 could \u201cfurther erode\u201d the \u00a322.7bn level of fiscal headroom available to Healey<\/a>, according to Handelsbanken, as the government is forced to pay billions of pounds more in debt interest payments.<\/p>\n The bank\u2019s senior UK economist said a rise in gilt yields would \u201cadd to the likelihood that fresh tax increases will be announced on 28 October\u201d.\u00a0<\/p>\n Pantheon Macroeconomics researchers suggested that higher gilt yields had now cut the fiscal headroom to just \u00a313bn, below previous forecasts of around \u00a315bn before a recent sell-off in bonds caused borrowing costs to rise.\u00a0<\/p>\n Rob Wood and Elliott Jordan-Doak, economists at the consultancy, also agreed that \u201cmore large tax hikes are on the way\u201d.\u00a0<\/p>\n The hit to bond markets would force the Office for Budget Responsibility (OBR)<\/a> to revise up its projections on debt interest payments in 2030. The UK government is currently set to spend about \u00a3135bn in paying off debt in five years.\u00a0<\/p>\n The OBR said that the government would have to spend about \u00a3110bn in paying off lenders this year, which is nearly double the amount spent on defence.\u00a0<\/p>\n \t\t\t\t\tRead more<\/p>\n \t\t\tIMF sounds alarm on borrowing costs surge as bond rout deepens<\/a><\/p>\n \tTax hikes loom<\/p>\n Upgrades on forecasts for borrowing costs would go along with a swathe of other fiscal pressures facing Healey, including calls for further defence spending and support for households in dealing with the cost of living.<\/p>\n The Chancellor is tasked with finding an extra \u00a31.2bn a year to fund a gap in the defence investment plan while also cutting expenditure across other government departments.\u00a0<\/p>\n Funded plans to strip VAT from energy bills, which could cost the state about \u00a3800m a year, have also not been fully laid out .\u00a0<\/p>\n The Chancellor is also under pressure to raise defence spending to three per cent of GDP, which would represent a boost of about \u00a310bn to expenditure on the military compared to current levels. Healey resigned as the defence secretary under Sir Keir Starmer\u2019s government over a failure to commit to raising defence spending to three per cent by 2030.\u00a0<\/p>\n