The £9.9bn of headroom, or spare money, which Reeves had left in the system to keep within her own “iron-clad” fiscal rules (which say she must pay for day-to-day expenses out of taxation) will in all probability have disappeared when the Office for Budget Responsibility reports ahead of her spring statement at the end of next month and lowers its forecasts again.
She added: “When it comes to choices on tax, this government chooses to protect working people every single time.” Shortly after delivering the budget she also told businesspeople that the Labour government would not be “coming back for more” in tax.
Many economists now believe her best option on raising tax would be to extend the Tories’ freeze on tax thresholds beyond 2028, thereby reversing a pledge she made in the budget to end the freeze then.
James Smith, research director at the Resolution Foundation, agreed: “With the Treasury confirming that the fiscal rules are non-negotiable, this throws up unenviable policy choices for the chancellor – putting in place unpopular tax rises or painful cuts to public services or welfare.
Rob Wood, chief UK economist at consultants Pantheon Macroeconomics says that while there are now some positive messages from the economy, the chancellor is almost certain to be told by the OBR in the coming weeks that all her financial leeway has indeed evaporated and that therefore she will need to cut spending or raise taxes.
