Reeves may need to raise taxes by £25bn, warns IFS

Rachel Reeves may need to raise up to £25bn from tax increases if she wants to keep spending rising with national income, the Institute for Fiscal Studies (IFS) estimates.

- HELEN CORBETT

Even if the chancellor changes the debt rule she inherited from the Tories, this would do “almost nothing” to ease the challenge on public service funding, the IFS said as it released its Green Budget report.

Because of her promise to meet day-to-day spending out of revenues, Ms Reeves would still need to turn to tax rises to avoid spending cuts and meet her pledge to borrow only to invest. IFS director Paul Johnson said Ms Reeves’s first Budget, which she will deliver on 30 October, could be “the most consequential since at least 2010”.

The report, funded by the Nuffield Foundation and using economic forecasting by Citi, analysed the challenges facing the chancellor. In a scenario modelled by Citi, the report concluded that if there are no cuts to spending outside of public services, Ms Reeves would need a tax rise of £16bn to remain on course to balance the budget in 2028-29.

This would be on top of the £9bn tax rise from measures set out in Labour’s manifesto – adding up to almost £25bn in total.