Chancellor facing £10bn headache in Spring Statement
Rachel Reeves faces a tax and spend nightmare at the Spring Statement, according to the Institute for Fiscal Studies (IFS) think tank.
In a lengthy report, the IFS says Reeves is snookered between the realities of a bleak economic environment and her own self-imposed fiscal rules, resulting in what could amount to a £10bn tax raid.
The Chancellor had hoped that the £9.9bn in fiscal headroom following the October Budget might cushion the UK from tax raises or spending cuts – but this narrow leeway is likely lost.
The Office for Budget Responsibility (OBR) is set to publish a forecast ahead of the 26 March Spring Statement, which will provide more clarity as to the scale of the Treasury’s troubles.
The IFS has suggested that the government might renege on its promise to only hold one major fiscal event a year, stating: “The Spring Forecast could turn out to be far more consequential than the non-event it was first billed as”.
The Treasury made this pledge back in December, when announcing the date of the Spring Statement: “The Chancellor remains committed to one major fiscal event a year”.
And even with hikes in taxation and potentially swinging cuts to public spending, the Chancellor still might find herself in violation of her fiscal rules.
“Given economic developments since the autumn, it is possible – though by no means guaranteed – that the Chancellor will now be missing one or both of these fiscal rules under the OBR’s updated forecasts,” says the IFS.
The group added: “Rachel Reeves will be hoping that she is still on track to meet her fiscal rules under the OBR’s updated forecast. It is possible that she will be.
“Higher interest rates and a possible growth downgrade will weigh in one direction.”