Reeves likely to raise taxes to fix £51bln public finance
The National Institute of Economic and Social Research (Niesr) said weaker-than-expected recent economic activity, U-turns on welfare cuts and forecast-beating borrowing mean Ms Reeves is on track to miss one of her fiscal rules by £41.2 billion in 2029-30
Chancellor Rachel Reeves will likely have to raise taxes as part of “substantial” action needed at the autumn budget to plug a £51 billion black hole in the public finances, a major economic think tank has warned.
The National Institute of Economic and Social Research (Niesr) said weaker-than-expected recent economic activity, U-turns on welfare cuts and forecast-beating borrowing mean Ms Reeves is on track to miss one of her fiscal rules by £41.2 billion in 2029-30.
It cautioned she faces an “impossible trilemma” of trying to meet her fiscal rules while fulfilling spending commitments and upholding a manifesto pledge not to raise taxes.
Including the need to rebuild the fiscal buffer of just under £10 billion that has been wiped out, she will have to find over £51 billion, according to the group.
In its latest economic outlook, Niesr said she will likely need to break her pledge not to raise taxes for working people and resort to “moderate but sustained” hikes, or cut spending, to address the shortfall.
Substantial adjustments in the autumn budget will be needed if the Chancellor is to remain compliant with her fiscal rules, said Niesr.
The report has fuelled speculation over how the Government may look to boost tax revenues in the autumn, including mounting rumours of a possible wealth tax.
Professor Stephen Millard, Niesr’s deputy director for macroeconomics, said: Things are not looking good for the Chancellor, who will need to either raise taxes or reduce spending or both in the October budget if she is to meet her fiscal rules.
Niesr said if the Government moved to extend the income tax threshold beyond 2028, it would bring in around £8.2 billion – far short of what is needed.
To fill the £51 billion black hole would require a rise in the basic and higher rates of income tax by five percentage points, according to the group.
It is recommending “gradual” tax rises and for the Chancellor to look at reforms, such as overhauling the council tax bands and possibly replacing it with a land value tax.