Thu, 27 Mar 2025

Thu, 27 Mar 2025 Why Rachel Reeves may have to raise UK taxes in October

The chancellor is on track to meet her own fiscal rules, so why is there talk of tax rises in the autumn?

* Chancellor Rachel Reeves has set out her Spring Statement plans and is on track to meet her self-imposed fiscal rules, but critics say she may struggle to do so.
* The Office for Budget Responsibility (OBR) has warned that there are risks to the UK economy, including an escalating trade war, small downgrade to growth forecasts or a rise in interest rates, which could "wipe out" Reeves' headroom.
* The OBR's headroom forecast is relatively low at £9.9bn, compared to previous chancellors who have had three times more room for maneuver.
* Big welfare cuts and spending reductions in the Spring Statement have restored the chancellor's headroom, but businesses are facing a worrying time due to upcoming cost increases.
* If Reeves' headroom disappears, she would be forced to implement either further spending cuts or tax rises to meet her fiscal rules.
* Economists warn that speculation about potential tax rises could cause economic harm and that the government may struggle to increase its tax base.
* The current economic outlook is uncertain due to global factors such as US trade policies, the war in Ukraine, and domestic issues like business costs rising in April.
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