Rachel Reeves needs £50bn tax raid to stick to fiscal rules, economists warn
The Treasury will need to raise more than £50bn in fresh taxes to stay within its fiscal rules, one of the UK’s most prestigious economic groups has warned, laying bare the scale of the pain that could be wrought on businesses by Rachel Reeves in the autumn.
The government is set to miss its “stability rule” by as much as £41.2bn by 2029-30 on top of having to maintain its £9.9bn “wafer thin” fiscal headroom, according to a report by the National Institute of Economic and Social Research, with economists adding that there was no way such huge sums could be raised without Labour breaking its manifesto commitment not to increase taxes on working people.
The extra cash needed would be equivalent to a staggering five per cent hike on both the basic and higher rates of income tax, NIESR said, adding that a freeze on current tax thresholds would rake in an extra £8.2bn.
The research group cut its growth projections for 2026 to 1.2 per cent, down from its earlier forecast of 1.5 per cent, and warned that growth would be further subdued if the government went ahead with a major tax raid in the Chancellor’s autumn budget.
‘If only they had a plan’
“The really disappointing thing from my point of view was that when Labour came in there didn’t seem to be a plan on the table,” said NIESR deputy director, professor Stephen Millard.
“A lot of problems the chancellor is facing now could have been headed off at the pass if they had come in with a clear plan.”
Millard said there were “really hard decisions the chancellor is going to have to make if she is going to raise that £50bn.
“That requires large increases in taxes – fiddling at the edges is not going to do.”
He added that any tax rises should “protect the most vulnerable in society” and cautioned that the current freeze in the personal allowance was hammering the incomes of the lowest paid.
The report comes as Labour ministers have been urged to clarify whether the government will introduce an exit tax for wealthy investors in its latest scramble to raise fresh funds, with Tax Policy Associates chief Dan Neidle warning rumours of the move could be “damaging” for the UK economy.
An HM Treasury Spokesperson Said: “The OBR will publish an updated medium-term forecast alongside the Autumn Budget – we will not speculate on their forecast.
“As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy – which is our focus. Thanks to our planning reforms, the OBR has said that the economy is expected to grow by the end of the decade.”