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Rachel Reeves faces the prospect of another “groundhog day” unless next month’s budget goes further than plugging an estimated £22bn black hole in the public finances, according to a respected thinktank.
The Institute for Fiscal Studies (IFS) said there was a “strong case” for the chancellor to substantially increase the £10bn headroom she has previously given herself against her own debt rules, or risk further repeats of needing to restore the buffer in the years ahead.
It said Ms Reeves could bring the cost of servicing government debt down through ending constant chatter over the limited breathing space she has previously given herself, in uncertain times for the global economy.
The chancellor herself used an interview with Sky News this week to admit tax rises were being considered, and appeared to concede she was trapped in a “doom loom” of annual increases.
What is the chancellor facing?
Speculation over the likely contents of the budget has been rife for months and intensified after U-turns by the government on planned welfare reforms and on winter fuel payments.
The Office for Budget Responsibility’s determination on the size of the black hole facing Ms Reeves could come in well above or below the IFS estimate of £22bn, which includes the restoration of the £10bn headroom but not the cost of any possible policy announcements such as the scrapping of the two-child benefit cap.
Economists broadly agree tax rises are inevitable, as borrowing more would be prohibitive given the bond market’s concerns about the UK’s fiscal position.
Long-term borrowing costs have…
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