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17h ago

Rachel Reeves Confronts £51bn Funding Gap and Tax-Spending Trilemma

Experts warn moderate, sustained increases in income tax, VAT or employee National Insurance are needed to restore fiscal headroom before the October budget

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Overview

  • The National Institute of Economic and Social Research projects a £51bn shortfall by 2029-30 once weaker growth, forecast-beating borrowing and U-turns on welfare and fuel payments are accounted for.
  • Reeves faces an “impossible trilemma” between upholding her fiscal rules, maintaining spending commitments and honouring her manifesto pledge not to raise taxes on working people.
  • Analysts at Deutsche Bank and Capital Economics estimate slightly smaller shortfalls of £20–25bn but agree that substantial fiscal adjustments are necessary in the October budget to meet the rules.
  • Prime Minister Keir Starmer has declined to rule out rises in VAT, income tax or corporation tax as the government prepares its autumn budget.
  • Culture Secretary Lisa Nandy has rejected a standalone wealth tax, leaving threshold freezes, VAT changes or national insurance hikes as the main policy levers under consideration.