Rachel Reeves is projected to require tax increases to address a government spending gap surpassing £40 billion, influenced by economic factors like inflation and tariffs. The National Institute of Economic and Social Research indicated that the current budget deficit could reach £41.2 billion, necessitating £51.1 billion in revenue by 2029-30 to maintain a financial buffer. Tax hikes are seen as the primary solution, and a proposed 5p increase in income tax rates could help mitigate the financial deficit. A review of tax rates and budget rules is also advised to stabilize public finances.
Rachel Reeves will need to raise taxes to close a government spending gap that is on course to reach more than 40bn after a slowdown in economic growth and higher-than-expected inflation.
NIESR said moderate but sustained tax rises would be needed in the autumn budget for Reeves to overcome a deficit of 41.2bn and restore a near 10bn buffer.
With extra borrowing likely to spook financial markets and ministers already struggling to stay within departmental spending limits, the thinktank said tax rises would be the most likely option.
He said NIESR recommended a bigger buffer. To do that requires a moderate but sustained increase in taxes.
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