Chancellor John Healey has been presented with a plan to impose further taxes on oil firms and banks, following reports of huge profits posted by bosses in both sectors.
Treasury officials are said to believe that windfall taxes on banks and oil companies could be “low hanging fruit” for increasing government receipts, according to Bloomberg.
The mooted proposals could put City bosses on edge during the two-month run of lobbying and speculation ahead of this year’s Budget on 28 October.
Citigroup boss Dame Jane Fraser has already warned Healey against introducing a new banking tax, while industry officials at UK Finance have written to the Chancellor highlighting the risks of targeting the financial services sector.
Healey faces the challenge of finding £4.7bn in extra government revenue over four years to fund the defence investment plan, alongside another £10bn in cuts across departments.
His fiscal buffer has also partly eroded, with the Resolution Foundation estimating it could be as low as £8bn, leaving public finances more exposed to shocks from higher energy prices.
New public sector pay pressures are adding further strain, with Andy Burnham agreeing to give train drivers on Avanti a pay rise of around 3.6 per cent, according to The Sunday Times.
The Aslef union, which represents some drivers earning over £70,000 a year, secured the deal with Burnham to prevent disruption on the line connecting London to Manchester.
Drivers on the east coast operator LNER could meanwhile receive a 12 per cent pay rise over four years, according to reports, tightening the squeeze on public finances further.
Barclays economist Jack Meaning said he believed the fiscal statement would represent “continuity” from Rachel Reeves, with Healey likely to rely more heavily on re-allocating budgets across government departments.
City economists broadly do not expect the Budget to break significantly from the previous government’s economic plans, ruling out vast expansions in public spending or further borrowing.
The government has already confirmed it will leave a decision to raise defence spending to three per cent of GDP until the middle of next year, when a spending review is scheduled to take place.
A Treasury spokesperson said: “The Chancellor is fully focused on his priorities to boost business, help with the cost of living and support people in every postcode, underpinned by fiscal discipline and a commitment to meeting the fiscal rules with a buffer against uncertainty.”
The spokesperson added: “The Office for Budget Responsibility will publish its updated forecast alongside the Budget in October and we will not comment on rumour, speculation or proposals about its contents ahead of then.”