Overview
- Weaker-than-expected growth, rising borrowing costs and U-turns on planned welfare cuts have eroded about £9.9bn of headroom and created a £15bn–£50bn fiscal gap ahead of the autumn Budget.
- Analysts from Capital Economics, Pantheon Macroeconomics, Deutsche Bank and Oxford Economics estimate shortfalls of roughly £15bn–£25bn or around £20bn, while the NIESR warns it could exceed £40bn.
- Forecasters say smaller measures such as sin taxes on tobacco, alcohol and gambling, stealth taxes through frozen income-tax thresholds and targeted levies on sugary or polluting products could fill lower-end gaps.
- If the gap reaches £40bn–£50bn, experts including NIESR’s Stephen Millard argue that increases in income tax, national insurance or VAT will be unavoidable.
- Reeves must balance Labour’s pledge to avoid taxing working people, protect key public services and await the OBR’s pre-Budget forecast before finalising her strategy.