Chancellor warns of possible further tax raids breaching Labour’s own fiscal rules

The National Institute of Economic and Social Research (NIESR) has warned that the Chancellor is set to break the government’s own fiscal rules as Rachel Reeves has said she might have to raise taxes again.

The think tank has now downgraded growth forecasts and the government’s fiscal position is leading to weak domestic demand.

NIESR is expecting GDP to grow 1.2% in 2025 from February’s forecast of 1.5% due to “low business confidence” along with “high uncertainty.”

During the Spring Statement the Chancellor claimed they are set to maintain a £9.9 billion fiscal buffer by 2029.

But the think tank has warned they are forecasting a shortfall of £62.9 billion by 2029/2030 which could see further tax hikes and spending cuts.

Benjamin Caswell, senior economist at the NIESR said, “No headroom means tough choices for the chancellor ahead of the autumn budget.”

The government has vowed that they will not increase income tax, VAT or national insurance as they will stick to their fiscal rules.

Stephen Millard, NIESR’s interim director said, “The chancellor’s self-imposed and arbitrary fiscal rules have led to a situation where twice a year the chancellor has to either find further departmental savings or announce politically unpalatable tax rises.

“The uncertainty created by this leads to low investment and lower growth, the precise reverse of what the government wants to achieve. We have to rethink the fiscal framework.”

Adrian Pabst, NIESR’s deputy director for public policy said, “The government’s ambition of boosting growth and living standards in every part of the United Kingdom requires a comprehensive, credible plan of economic transformation which is yet to emerge.

“While planning reform and infrastructure investments in London and the South East will add to GDP growth, we need higher public investment in second-tier cities and poorer regions to unlock greater business investment.”