Philip Hammond: Raise taxes for all to improve services

All earners in the UK, not just the wealthiest, will need to pay higher tax if public services like the NHS are to improve, an ex-chancellor has warned.

Lord Philip Hammond told the BBC that the next few months could be «incredibly difficult» for many people.

It came after Michael Gove refused to confirm whether benefits would rise with the soaring cost of living.

Lord Hammond questioned how more support for the vulnerable would be paid for by the current government.

The former chancellor, who served under Theresa May, said that Rishi Sunak now faces a «huge challenge» trying to balance the government’s books and boost the economy at the same time.

He told the BBC’s Laura Kuenssberg programme that stricter rules on borrowing would need to apply in the wake of the mini-budget.

«Borrowing is no longer on the table after the market tantrum… And that applies to a Labour government wanting to offer more public spending, just as it applies to a Tory government wanting to borrow to cut taxes,» he said.

The pound fell to a record low against the dollar and government borrowing costs rose in the wake of then-chancellor Kwasi Kwarteng’s mini-budget, where he announced major tax cuts without detailing how they would be paid for.

In Rishi Sunak’s first speech as prime minister, he said he would «fix» the mistakes made during his predecessor’s time in office.

Jeremy Hunt, who replaced Mr Kwarteng as chancellor, needs to find billions of pounds of savings to keep the UK’s debt under control, although the cost of government borrowing has since fallen back.

Philip Hammond said that he would be «very surprised», however, if the government did not decide to increase benefits in line with the soaring cost of living.

Speaking on the BBC programme, Levelling Up Secretary Michael Gove refused to commit to the policy, despite insisting that the prime minister was «locked on» to the needs of the most vulnerable.

In response, Lord Hammond also questioned comments by Michael Gove made about targeted support.

«I heard Michael Gove talking about targeted support for all sorts of people but I didn’t hear him say how it will be paid for.»

He added that Rishi Sunak would need to prioritise plans to boost the economy now that Liz Truss’s strategy was «dead in the water».

«They’re going to have to come up with a growth plan,» he said.

«Without growth we’re not going to be able to solve the problems our public services are facing and solve this conundrum that people don’t want to pay higher taxes but they do want better public services — the only way you can resolve that is higher growth.»

He added: «Of course you can tax wealthy people a bit more but the reality of the fiscal challenge we face is that if we want public services not just to be maintained but to be improved… Everybody including ordinary earners are going to have to pay more tax.»

Former governor of the Bank of England, Mervyn King, also recently warned that the UK faces «significantly higher taxes» to fund public spending as the government attempts to stabilise the economy.

The central bank said in September that the UK could already be in recession, partly caused by soaring food and energy costs placing a squeeze on household budgets.

Chancellor Jeremy Hunt will set out his tax and spending plans for the UK on 17 November, two weeks later than originally expected.

With Mr Sunak promising stronger public services, some predict the pair will favour new taxes rather than spending cuts, which could include increasing windfall taxes on energy companies, for example.