Sir Keir Starmer suggested that Labour may need to consider tax increases in the upcoming budget due to a projected £50 billion shortfall in public finances. Economists claim that Chancellor Rachel Reeves must find £51 billion annually by 2029/30 either through increased taxes or spending cuts. NIESR reported that Reeves’ previous financial buffer has vanished, exacerbated by weak growth and inflation. Professor Stephen Millard explained that the size of the deficit implies considerable tax hikes could be needed, creating an 'impossible trilemma' for the Chancellor as she navigates fiscal rules, labours commitments, and a tax lock promise.
Filling a £50 billion hole is a huge undertaking. We're looking at the equivalent of a five percentage point increase in both the basic and higher rates of income tax.
NIESR estimates that Reeves' £9.9 billion 'buffer' from the March Budget has already disappeared, due to weaker growth, inflationary pressures, and slower-than-expected economic recovery.
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