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Rachel Reeves will need to find more than £40bn of tax rises or spending cuts in the autumn budget to meet her fiscal rules, a leading research institute has warned.
The National Institute of Economic and Social Research (NIESR) said the government would miss its rule, which stipulates that day to day spending should be covered by tax receipts, by £41.2bn in the fiscal year 2029-30.
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In its latest UK economic outlook, NIESR said: “This shortfall significantly increases the pressure on the chancellor to introduce substantial tax rises in the upcoming autumn budget if she hopes to remain compliant with her fiscal rules.”
The deteriorating fiscal picture was blamed on poor economic growth, higher than expected borrowing and a reversal in welfare cuts that could have saved the government £6.25bn.
Together they have created an “impossible trilemma”, NIESR said, with the chancellor simultaneously bound to her fiscal rules, spending commitments, and manifesto pledges that oppose tax hikes.
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The institute urged the government to build a larger fiscal buffer through moderate but sustained tax rises.
“This will help allay bond market fears about fiscal sustainability, which may in turn reduce borrowing costs,” it said.
“It will also help to reduce policy uncertainty, which can hit both business and consumer confidence.”
It said that money could be raised by reforms to council tax bands or, in a more radical approach, by replacing the whole council tax system with a land value tax.
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