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Tax rises are “likely” to come soon as the government faces an “unpalatable menu” to find ways to fill a £40bn fiscal black hole, a leading think tank has warned.

A Resolution Foundation report suggests Rishi Sunak and his Chancellor Jeremy Hunt face a thankless task to re-balance the nation’s finances after former chancellor Kwasi Kwarteng’s ill-fated economic plans.

At least £40bn will need to be found by the government on the backdrop of a gloomy economic outlook as part of the fall-out from Liz Truss’s disastrous mini-budget, the think tank said.

A combination of tax rises and spending cuts is likely to find that £40bn, it said.

Mr Sunak and Mr Hunt are currently figuring out how to tackle the abysmal economic forecast ahead of the Autumn Statement on 17 November, which was pushed back soon after Mr Sunak reappointed Mr Hunt.

A recession next year could be predicted by the government’s independent forecaster the Office for Budget Responsibility, the report said.

And GDP forecasts could be cut by up to 4% by the end of 2024.

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Unemployment could also rise by around half a million and the weaker economic outlook could bring borrowing up by around £20bn a year by 2026-2027, the report said.

“The government has a little over two weeks to finalise its plans to repair its economic credibility and the sustainability of the public finances,” said James Smith, research director at the Resolution Foundation.

“While the recent focus has been on conditions improving post-Trussonomics, the central picture remains one of a weaker growth, higher borrowing costs and expensive tax cuts that have left a fiscal hole of at least £40 billion to fill.”

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How ‘profound’ are our economic woes?

Fiscal rules hard to stick to

The report warns the government may find it difficult to meet its fiscal rules of reducing debt-to-GDP ratio in the medium term and delivering a current budget balance unless “significant further policy action is taken”.

It said the chancellor’s “menu” of options includes investment spending cuts, which could save £10bn but could have a detrimental impact on growth.

The government could also choose the “austerity option”, with already-squeezed department budgets being cut. Mr Hunt has already said all departments must find savings.

“With inflation at its highest level for 40 years, government departments are already seeing their budgets fall in real terms by around £22 billion by 2024-25,” the think tank said.

“It is hard to see how the Treasury could credibly save more than £20 billion by announcing cuts to day-to-day public service spending.”

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‘Delay best way to make right decisions’

‘Huge impact’ by not raising benefits and pensions

By not raising benefits and pensions in line with rising prices next year, the study suggests the government could save £9bn.

But it warns that would have a “huge” impact on those struggling, with a low-income working family with two children losing around £750 and a pensioner £342.

Another option would be to re-instate the health and social care levy to raise £15bn by 2026-2027, while around £2bn could be raised by extending the “stealth” freezes in income tax threshold by a further year to 2026-2027.

Public investment projects are likely to face cuts as history shows they are “easy to announce but reduce growth in the longer term”, Mr Smith said.

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New electric car grants of up to £3,750 aims to drive sales

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New electric car grants of up to £3,750 aims to drive sales

The taxpayer is to help drive the switch to non-polluting vehicles through a new grant of up to £3,750, but some of the cheapest electric cars are to be excluded.

The Department for Transport (DfT) said a £650m fund was being made available for the Electric Car Grant, which is due to get into gear from Wednesday.

Users of the scheme – the first of its kind since the last Conservative government scrapped grants for new electric vehicles three years ago – will be able to secure discounts based on the “sustainability” of the car.

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It will apply only to vehicles with a list price of £37,000 or below – with only the greenest models eligible for the highest grant.

Buyers of so-called ‘Band two’ vehicles can receive up to £1,500.

The qualification criteria includes a recognition of a vehicle’s carbon footprint from manufacture to showroom so UK-produced EVs, costing less than £37,000, would be expected to qualify for the top grant.

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It is understood that Chinese-produced EVs – often the cheapest in the market – would not.

BYD electric vehicles before being loaded onto a ship in Lianyungang, China. Pic: Reuters
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BYD electric vehicles before being loaded onto a ship in Lianyungang, China. Pic: Reuters

DfT said 33 new electric car models were currently available for less than £30,000.

The government has been encouraged to act as sales of new electric vehicles are struggling to keep pace with what is needed to meet emissions targets.

Challenges include the high prices for electric cars when compared to conventionally powered models.

At the same time, consumer and business budgets have been squeezed since the 2022 cost of living crisis – and households and businesses are continuing to feel the pinch to this day.

Another key concern is the state of the public charging network.

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The Chinese electric car rivalling Tesla

Transport Secretary Heidi Alexander said: “This EV grant will not only allow people to keep more of their hard-earned money – it’ll help our automotive sector seize one of the biggest opportunities of the 21st century.

“And with over 82,000 public charge points now available across the UK, we’ve built the infrastructure families need to make the switch with confidence.”

The Government has pledged to ban the sale of new fully petrol or diesel cars and vans from 2030 but has allowed non-plug in hybrid sales to continue until 2025.

It is hoped the grants will enable the industry to meet and even exceed the current zero emission vehicle mandate.

Under the rules, at least 28% of new cars sold by each manufacturer in the UK this year must be zero emission.

The figure stood at 21.6% during the first half of the year.

The car industry has long complained that it has had to foot a multi-billion pound bill to woo buyers for electric cars through “unsustainable” discounting.

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, said the grants sent a “clear signal to consumers that now is the time to switch”.

He went on: “Rapid deployment and availability of this grant over the next few years will help provide the momentum that is essential to take the EV market from just one in four today, to four in five by the end of the decade.”

But the Conservatives questioned whether taxpayers should be footing the bill.

Shadow transport secretary Gareth Bacon said: “Last week, the Office for Budget Responsibility made clear the transition to EVs comes at a cost, and this scheme only adds to it.

“Make no mistake: more tax rises are coming in the autumn.”

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City financier Kolade joins ranks of Channel 4 chair contenders

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City financier Kolade joins ranks of Channel 4 chair contenders

A leading financier and Conservative Party donor is among the contenders vying to chair Channel 4, the state-owned broadcaster.

Sky News has learnt from Whitehall sources that Wol Kolade has been shortlisted to replace Sir Ian Cheshire at the helm of the company.

Mr Kolade, who has donated hundreds of thousands of pounds to Tory coffers, is said by Whitehall insiders to be one of a handful of remaining candidates for the role.

A recommendation from Ofcom, the media regulator, to Culture Secretary Lisa Nandy about its recommendation for the Channel 4 chairmanship is understood to be imminent.

Mr Kolade, who heads the private equity firm Livingbridge, has held non-executive roles including a seat on the board of NHS Improvement.

He declined to comment when contacted by Sky News on Monday.

His candidacy pits him against rivals including Justin King, the former J Sainsbury chief executive, who last week stepped down as chairman of Ovo Energy.

Debbie Wosskow, an existing Channel 4 non-executive director who has applied for the chair role, is also said by government sources to have made it to the shortlist.

Sir Ian stepped down earlier this year after just one term, having presided over a successful attempt to thwart privatisation by the last Tory government.

The Channel 4 chairmanship is currently held on an interim basis by Dawn Airey, the media industry executive who has occupied top jobs at companies including ITV, Channel 5, and Yahoo!.

The race to lead the state-owned broadcaster’s board has acquired additional importance since the resignation of Alex Mahon, its long-serving chief executive.

It has since been reported that Alex Burford, another Channel 4 non-executive director and the boss of Warner Records UK, was interested in replacing Ms Mahon.

Ms Mahon, who was a vocal opponent of Channel 4’s privatisation, is leaving to join Superstruct, a private equity-owned live entertainment company.

The appointment of a new chair is expected to take place by the autumn, with the chosen candidate expected to lead the recruitment of Ms Mahon’s successor.

The Department for Culture, Media and Sport declined to comment on the recruitment process.

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Premier League club Brentford to sell stake at £400m valuation

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Premier League club Brentford to sell stake at £400m valuation

The owner of Brentford Football Club has clinched a deal to sell a minority stake in the Premier League side to new investors at a valuation of roughly £400m.

Sky News has learnt that an agreement that will involve current owner Matthew Benham offloading a chunk of his holding to Gary Lubner – the wealthy businessman who ran Autoglass-owner Belron – is expected to be announced as early as Tuesday.

Matthew Vaughn, the Hollywood film-maker whose credits include Layer Cake and Lock, Stock and Two Smoking Barrels, is also expected to invest in Brentford as part of the deal, The Athletic reported last month.

Further details of the transaction were unclear on Monday night, although one insider speculated that it could ultimately see as much as 25% of the club changing hands.

If confirmed, it would underline the continuing interest from wealthy investors in top-flight English clubs.

FA Cup winners Crystal Palace have seen a minority stake being bought by Woody Johnson, the New York Jets-owner, in the last few weeks, with that deal hastened by the implications of former shareholder John Textor’s simultaneous ownership of a stake in French club Lyon.

Sky News revealed in February 2024 that Mr Benham had hired bankers at Rothschild to market a stake in Brentford.

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Under Mr Benham’s stewardship, it has enjoyed one of the most successful transformations in English football, rising from the lower divisions to the top division in 2021.

It has also moved from its long-standing Griffin Park home to a new stadium near Kew Bridge.

This summer is proving to be one of transition, with manager Thomas Frank joining Tottenham Hotspur and striker Bryan Mbeumo the subject of persistent interest from Manchester United.

Brentford did not respond to a request for comment on Monday night, while a spokesman for Mr Lubner declined to comment.

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