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2w ago

Reeves Confronts an ‘Impossible Trilemma’ as £41bn Tax Shortfall Looms

Economists urge moderate sustained tax rises through measures such as a VAT levy on private healthcare to rebuild the Treasury’s fiscal buffer

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British Chancellor of the Exchequer Rachel Reeves attends the annual Mansion House dinner in London, Britain, July 15, 2025. REUTERS/Isabel Infantes/File Photo
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Caption: Neil Kinnock has called for VAT to be added to private healthcare (Source: Tom Pilston)

Overview

  • The National Institute of Economic and Social Research warns of a £41.2bn shortfall on Reeves’s stability rule by 2029-30, describing her stance as an “impossible trilemma” between fiscal rules, spending pledges and a tax freeze for working people.
  • NIESR recommends building a larger fiscal buffer via moderate sustained tax increases to reassure markets and protect investment spending under current borrowing rules.
  • Former Labour leader Lord Kinnock proposes removing the VAT exemption on private acute healthcare, with Good Growth Foundation analysis estimating that a 20% levy could raise more than £2bn.
  • Good Growth Foundation polling shows 55% of adults back a windfall tax on private healthcare firms to bolster NHS funding.
  • Chancellor Rachel Reeves reiterates her manifesto pledge not to raise income tax, National Insurance or VAT on working people, restricting the scope for new revenue measures.