RACHEL Reeves will be forced to hike taxes or slash spending after wiping out her £9.9billion economic buffer, experts have warned. The Chancellor’s remaining headroom is believed to have now evaporated due to weak growth and high interest rates. It means she risks breaking her non-negotiable fiscal rules not to borrow for day-to-day spending, and to get debt falling by the next election. Economists at the National Institute of Economic and Social Research presented Ms Reeves with the grim choice facing her.
They said: “Our forecast indicates that zero fiscal headroom remains as the current budget is exactly balanced at the end of the forecast period. “Without changing taxation and spending plans, this means that there is no buffer through which to absorb cyclical economic shocks were they to materialise over the remainder of the parliament.”. Most experts expect the Chancellor to cut Whitehall spending rather than raise taxes even more, which she has admitted is not desirable.
Ms Reeves was widely slammed for using her first Budget to raise taxes by £40billion, including £25billion in National Insurance on bosses. But she has also pledged there will be “no return to austerity”, and so is reluctant to cut government spending. Labour had banked on securing economic growth to fund their spending plans, but that has been lacklustre since they took office. The Bank of England last week slashed their growth forecast for this year from 1.5 per cent to 0.75 per cent.
Ms Reeves yesterday warned of being "kicked out” of office if Labour do not deliver on the NHS and living standards amid the threat from Reform. The Chancellor told The Political Party with Matt Forde said: “There’s lots of strategies for beating Reform or beating the Tories but in the end we have to deliver, haven’t you. “At the next election, if people still find as hard to get a doctor’s appointment and they’re no better off, they are going to kick us out, like they kicked the last lot out.”.
