Rachel Reeves could raise 45bn in taxes and keep promises, report says

"Tax-wise, we can see [about] 25bn of measures that don't breach the spirit of the Labour manifesto, are not outright inflationary, and can be implemented at a gradual pace, Bruna Skarica, the bank's chief UK economist, said. Economists have said that a series of welfare U-turns, elevated borrowing costs and an anticipated productivity downgrade from the Office for Budget Responsibility could leave Reeves facing a shortfall against her fiscal rules of 30bn."

"Reeves this week used her conference speech to warn Labour figures against peddling the idea that the government could abandon fiscal responsibility, while Keir Starmer told delegates the fiscal rules were non-negotiable. It came after Andy Burnham, the mayor of Greater Manchester, last week suggested that Labour should not be in hock to global bond markets, amid pressure to turn around the government's dismal ratings in opinion polls."

Morgan Stanley economists estimate Rachel Reeves could raise as much as 45bn in taxes without breaking Labour manifesto promises, with about 25bn feasible without breaching the manifesto's spirit, being non-inflationary and implementable gradually. Economists expect the chancellor may need billions in tax increases to cover a potential 30bn shortfall caused by welfare reversals, higher borrowing costs and an anticipated productivity downgrade from the Office for Budget Responsibility. The OBR will provide pre-measures forecasts that will shape the 26 November budget. Political constraints include manifesto pledges not to raise income tax, national insurance or VAT and lobbying from business leaders.

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