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Chancellor Reeves Signals Tax Hikes After £5 Billion Welfare U-Turn

She must decide whether to break her no-tax-rise pledge to bridge the £5 billion hole left by the welfare revolt in order to meet Labour’s strict fiscal targets.

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Rachel Reeves has all but confirmed she will raise taxes this autumn after the Government’s embarrassing climbdown on benefits reforms (Photo: House of Commons)
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Overview

  • A backbench rebellion forced the government to abandon planned cuts to universal credit and PIP, creating a £5 billion shortfall under Reeves’s self-imposed fiscal rules.
  • Reeves has warned cabinet that filling the gap will require further tax rises in the autumn budget, potentially challenging Labour’s manifesto commitments on income tax, national insurance or VAT.
  • Economists caution that covering a possible £30 billion wider funding deficit may necessitate additional tax increases or measures such as pension-saving raids, testing the party’s growth agenda.
  • Prime Minister Keir Starmer publicly reaffirmed his support for Reeves, saying she will remain chancellor into the next election despite market jitters after her tearful Commons appearance.
  • Downgraded growth forecasts by the Office for Budget Responsibility and rising debt-servicing costs have narrowed borrowing headroom to under £10 billion, heightening autumn budget pressures.