Goldman Sachs says UK tax hikes have a poor record of fixing finances

Goldman Sachs has cautioned that raising taxes again is unlikely to deliver a durable improvement in Britain’s fiscal position, warning that higher levies can depress growth and keep interest rates higher for longer.

In analysis carried overnight and published this morning, Goldman’s economists said the UK has had “limited historical success” improving the public finances through tax increases, a message that will resonate as the Treasury prepares for the 26 November budget amid weak productivity and elevated borrowing costs.

With the tax burden at multi‑decade highs, the bank argued that additional rises risk intensifying pressure on firms’ costs, wages and pricing power, complicating the Bank of England’s task. “Further taxes would likely keep interest rates higher for longer due to stubborn inflation,” Goldman said, adding that debt‑service costs would rise if gilt yields remain pinned at elevated levels. The note implied that supply‑side reforms and pro‑investment measures may offer a better path to improving the debt trajectory than across‑the‑board tax hikes.

The debate comes as long‑dated gilts have traded near levels last seen in the late 1990s, reflecting term‑premium rebuilding and fiscal uncertainty. Analysts say the UK’s challenge is to balance credible consolidation with growth‑enhancing moves that lift real incomes. While no detailed budget measures have been published, business groups have urged reforms to business rates, childcare and stamp duty to improve labour mobility and investment, while warning against blunt corporate tax rises.

The government has signalled it will support the central bank’s anti‑inflation stance while seeking to unlock private capital, including via pension reforms and measures to deepen domestic markets. Against that backdrop, the Goldman view adds to a growing chorus urging caution on revenue‑raising that risks undercutting demand and investment. The practical test will come in the Red Book arithmetic and the Office for Budget Responsibility’s judgment on growth and debt dynamics later this autumn.