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

Published

1 month 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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Heidi Alexander says ‘fairness’ will be government’s ‘guiding principle’ when it comes to taxes at next budget

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9 hours ago

July 13, 2025

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Heidi Alexander says 'fairness' will be government's 'guiding principle' when it comes to taxes at next budget

Another hint that tax rises are coming in this autumn’s budget has been given by a senior minister.

Speaking to Sunday Morning with Trevor Phillips, Transport Secretary Heidi Alexander was asked if Sir Keir Starmer and the rest of the cabinet had discussed hiking taxes in the wake of the government’s failed welfare reforms, which were shot down by their own MPs.

Trevor Phillips asked specifically if tax rises were discussed among the cabinet last week – including on an away day on Friday.

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Tax increases were not discussed “directly”, Ms Alexander said, but ministers were “cognisant” of the challenges facing them.

Asked what this means, Ms Alexander added: “I think your viewers would be surprised if we didn’t recognise that at the budget, the chancellor will need to look at the OBR forecast that is given to her and will make decisions in line with the fiscal rules that she has set out.

“We made a commitment in our manifesto not to be putting up taxes on people on modest incomes, working people. We have stuck to that.”

Ms Alexander said she wouldn’t comment directly on taxes and the budget at this point, adding: “So, the chancellor will set her budget. I’m not going to sit in a TV studio today and speculate on what the contents of that budget might be.

“When it comes to taxation, fairness is going to be our guiding principle.”

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Afterwards, shadow home secretary Chris Philp told Phillips: “That sounds to me like a barely disguised reference to tax rises coming in the autumn.”

He then went on to repeat the Conservative attack lines that Labour are “crashing the economy”.

Mr Philp then attacked the prime minister as “weak” for being unable to get his welfare reforms through the Commons.

Discussions about potential tax rises have come to the fore after the government had to gut its welfare reforms.

Sir Keir had wanted to change Personal Independence Payments (PIP), but a large Labour rebellion forced him to axe the changes.

With the savings from these proposed changes – around £5bn – already worked into the government’s sums, they will now need to find the money somewhere else.

The general belief is that this will take the form of tax rises, rather than spending cuts, with more money needed for military spending commitments, as well as other areas of priority for the government, such as the NHS.