Rachel Reeves is a “gnat’s whisker” away from having to raise taxes in the autumn budget, a leading economist has warned – despite the chancellor insisting her plans are “fully funded”.
Paul Johnson, director of the Institute for Fiscal Studies (IFS), said “any move in the wrong direction” for the economy before the next fiscal event would “almost certainly spark more tax rises”.
‘Sting in the tail’ in chancellor’s plans – politics latest
Speaking the morning after she delivered her spending review, which sets government budgets until 2029, Ms Reeves told Wilfred Frost hiking taxes wasn’t inevitable.
“Everything I set out yesterday was fully costed and fully funded,” she told Sky News Breakfast.
Her plans – which include £29bn for day-to-day NHS spending, £39bn for affordable and social housing, and boosts for defence and transport – are based on what she set out in October’s budget.
That budget, her first as chancellor, included controversial tax hikes on employers and increased borrowing to help public services.
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Chancellor won’t rule out tax rises
The Labour government has long vowed not to raise taxes on “working people” – specifically income tax, national insurance for employees, and VAT.
Ms Reeves refused to completely rule out tax rises in her next budget, saying the world is “very uncertain”.
The Conservatives have claimed she will almost certainly have to put taxes up, with shadow chancellor Mel Stride accusing her of mismanaging the economy.
Taxes on businesses had “destroyed growth” and increased spending had been “inflationary”, he told Sky News.
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New official figures showed the economy contracted in April by 0.3% – more than expected. It coincided with Donald Trump imposing tariffs across the world.
Ms Reeves admitted the figures were “disappointing” but pointed to more positive figures from previous months.
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‘Sting in the tail’
She is hoping Labour’s plans will provide more jobs and boost growth, with major infrastructure projects “spread” across the country – from the Sizewell C nuclear plant in Suffolk, to a rail line connecting Liverpool and Manchester.
But the IFS said further contractions in the economy, and poor forecasts from the Office for Budget Responsibility, would likely require the chancellor to increase the national tax take once again.
It said her spending review already accounted for a 5% rise in council tax to help local authorities, labelling it a “sting in the tail” after she told Sky’s Beth Rigby that it wouldn’t have to go up.
