Rachel Reeves ‘a gnat’s whisker’ from having to raise taxes, says IFS

Published

2 months ago

June 12, 2025

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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”.

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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.

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.

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.

‘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.

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Chancellor Rachel Reeves dodges wealth tax calls from predecessor

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10 hours ago

August 1, 2025

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Chancellor Rachel Reeves dodges wealth tax calls from predecessor

Chancellor Rachel Reeves has dodged calls from her predecessor Anneliese Dodds for a wealth tax to be considered ahead of this autumn’s budget.

When Sir Keir Starmer became Labour leader in 2020, Ms Dodds was his first pick for shadow chancellor. However, she did not last long and was replaced by Ms Reeves, who then got the government job after last year’s election win.

Speaking to the Sky News political editor Beth Rigby on the Electoral Dysfunction podcast, Ms Dodds said she had examined wealth taxes when she was briefly in the shadow chancellor job and how one could be implemented.

She said: “I would hope the Treasury is considering that kind of evidence, as well as other changes that have been put forward.”

Asked today if about Ms Dodds’ intervention, Ms Reeves said: “Decisions around tax are decisions that are made at a budget and we’ll make those decisions in the appropriate way, but the number-one priority of this government is to grow the economy.

“And that means bringing more investment into Britain, creating more good jobs paying decent wages here in Britain.

Listen here to hear Ms Dodds’ full comments:

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“We’ve got to get the balance right on taxation because we want that investment, we want those jobs to come here.

“That’s why we’re reforming the planning system, secured three trade deals in the first year of this Labour government, cutting back on unnecessary regulation, and reforming our pension system to unlock money for businesses to be able to invest here in the UK.”

The government’s financial position is stretched ahead of the next budget, due at the end of autumn.

Ms Reeves has committed herself to not changing her fiscal rules, leaving little wiggle room to avoid tax rises or spending cuts.

This is due to the government’s inability to save money through policies like welfare reform, which were gutted due to a rebellion of backbench Labour MPs.

Last week, Business Secretary Jonathan Reynolds branded the suggestion of a wealth tax “daft” – but he has less influence over the writing of the budget than the chancellor.

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Meanwhile, reports from the Daily Telegraph suggested that Deputy Prime Minister Angela Rayner backed increasing taxes, including reinstating the pensions lifetime allowance and a higher corporation tax level for banks.

Ms Dodds also wants to see those considered.