Tax rises are now “very likely” following a raft of spending announcements by Rachel Reeves, a former government economist has warned.
In a speech to the Commons on Wednesday, the chancellor laid out the government’s updated spending plans across all government departments for the next four years.
She said her proposal was focused on “Britain’s renewal”, as she announced big funding boosts to defence, nuclear energy projects, the NHS and transport in England’s city regions.
Shadow chancellor Mel Stride branded the spending review as a “fantasy”, while financial experts have warned that it could prompt future tax raises.
“Obviously things can and will change between now and October – but at present it looks very likely indeed that the spending totals today will mean that taxes need to go up in October so that the Chancellor can meet the fiscal rules,” former government and now Kings College London economist, Jonathan Portes, told The Independent.
In last year’s Autumn Budget, taxes were raised including a hike in National Insurance payments paid by employers and capital gains tax.
But speaking in the Commons on Wednesday, Ms Reeves said she would never “have to repeat a budget like that again”.
Starmer set to be biggest cutter of overseas aid ever
The Independent’s Political Correspondent Archie Mitchell reports:
Sir Keir Starmer is on course to become the biggest cutter of overseas aid on record.
The prime minister slashed the international development budget to fund his plans to hike defence spending.
And now campaigners are warning it could land him with the damning legacy.
Adrian Lovett, executive director of the ONE Campaign, said: “Not only is Keir Starmer the first Labour Prime Minister on record not to increase aid spending, but he is on course to deliver the most severe cut to aid investment in other countries in decades – going further than Thatcher, Major, Johnson or Sunak ever did.
“These aren’t just numbers on a spreadsheet. This will lead to preventable deaths, diseases spreading faster and children going without vaccines. Some of the world’s most vulnerable people will pay the price for this decision, and it makes Britain less safe and strong, too.”
Rachel Reeves has set up ‘cruel summer of speculation’ on tax hikes
The Independent’s Political Correspondent Archie Mitchell reports:
Investment platform AJ Bell has accused the chancellor of setting up a “cruel summer of speculation”, with tax hikes almost certainly on the horizon.
Head of investment analysis Laith Khalaf said “attention will now turn to what tax rises might be in the post”.
He said it is “not the Spending Review itself which will fan the flames of speculation, but the expansion of the Winter Fuel Allowance, which the government reckons will cost £1.25 billion”.
He added: “Amid growing fiscal pressure, there’s a real risk that pensions tax reform speculation, especially around tax-free cash and tax relief, will return to the headlines.”
Spending review ‘huge net positive for net zero’
The chancellor’s statement has been welcomed by net-zero backers.
Rachel Reeves confirmed funding for for nuclear power schemes during her spending review on Wednesday.
Responding to the announcements, the CEO of the UK Sustainable Investment and Finance Association (UKSIF) said it marked a “huge net positive for net zero”.
“We are pleased the government is expanding its pledge to deliver cleaner, more energy-efficient properties through its Warm Homes Plan. This will drive private investment in heat pumps and solar panels, which can save families hundreds of pounds each year,” James Alexander said.
“New funding for the Acorn Project, a carbon capture and storage facility based in Aberdeenshire, shows a massive vote of confidence in this rapidly growing industry. It also puts the country on a path to becoming a world leader, potentially unlocking billions of pounds in private investments and creating thousands of well-paid jobs in the sector.”
Defence spending hike should not be viewed as ‘long term silver bullet’
The Independent’s political correspondent Millie Cooke reports:
The government’s uplift to defence spending is welcome, but should not be viewed as a “long-term silver bullet”, a drone defence-tech company has said following Rachel Reeves’ spending review.
Jens Holzapfel, of Nordic Air Defence, urged the government to “prioritise our defence before it is too late”, warning that the “heartbreaking devastation seen in…Ukraine could one day be London, or Berlin, or Paris, unless the threat is treated with the gravity and seriousness it deserves.”
The defence expert said: “Although small, the uplift to 2.6 per cent of GDP for defence spending alongside defence secretary John Healey’s recognition that the UK needs to step-up its military technology is a positive move in the right direction.”
However, we must ensure that this one spending uplift is not viewed as a long-term silver bullet and that it is invested in the right defence areas. It is vital we don’t fall behind the curve of states like Russia who have been harnessing tech warfare for some time now.”
Boss of major health foundation says Reeves has not given the NHS enough
The Independent’s Whitehall Editor Kate Devlin reports:
Laurie Lee, the chief executive of Guy’s & St Thomas’ Foundation said he welcomed the increase in spending directly on healthcare, investment in social housing, free school meals and clean energy which he said will “help deliver better health for all of us”.
He added: “These are encouraging steps in the context of some tough spending decisions. But spending on these alone will not be insufficient to meet the growing demands on the NHS.
“Prevention is better than cure – and it is about more than the money. The roots of our health sit outside the NHS and the government can have a greater impact by ensuring they are addressing the issues that make people sick – from regulating unhealthy food, ensuring we have clean air to breathe, and affordable good quality homes to live in.
“As the government purse closes for now, these measures have greater potential to give Treasury and taxpayers more bang for their buck when it comes to creating a healthier society.”
New road and airport plans will wreck climate plan, green activists warn
Spending on new roads and airports risks sabotaging a climate plan ministers are due to unveil later this year, Friends of the Earth has warned.
Mike Childs, head of policy at the charity, welcomed investment into warm homes, buses and trains, but said the government must go further and faster.
“Ministers must publish a new climate plan later this year to deliver on legally binding targets and international commitments, but it risks being undermined by spending on new roads and airports while climate solutions face under-investment,” he said.
“Despite modest investment in environmental farming, trees and peatland restoration, the reality is that Defra is still underfunded, farmers need more money, and planning reforms that strip away wildlife protections will accelerate nature’s decline.”
Home Office to slash costs through ‘use of AI’
Under efficiency plans published by the Treasury, the Home Office will be expected to save £533m per year by 2028-29.
This will be achieved though “reducing the use of third-party resources” and “increased automation and use of AI”.
The document says that cuts will be achieved through “increased automation and use of AI to reduce reliance on manual processes so staff time can be focused on more complex tasks”.
Economic think tank: Spending alone will not boost living standards
The New Economics Foundation has warned that a spending splurge alone will not be enough to boost the living standards of struggling households.
Chief executive Danny Sriskandarajah said: “People across the country are already struggling to pay for the essentials, and we know that cuts to benefits and day-to-day spending in key departments will only leave people feeling worse off. Voters have already shown this is not something they will tolerate.”
He called on Rachel Reeves to ditch her self-imposed fiscal rules and impose a wealth tax to boost funding for public services.
Former government economist warns tax hikes now ‘very likely’
It is very likely that the chancellor will be forced to raise taxes in October in order to balance the books, KCL economist Jonathan Portes has warned.
He said this is most likely to include an increased to taxes on savings and pensions, and possibly fuel duty.
“Obviously things can and will change between now and October – but at present it looks very likely indeed that the spending totals today will mean that taxes need to go up in October so that the Chancellor can meet the fiscal rules”, he told The Independent.
The former government economist welcomed the both the boost to social housing and investment in transport infrastructure, but added: “The best time to make these investments would have been a decade ago – when the government could have borrowed money at much lower rates than now – but the next best time is now.
“However, the counterpart to that is that some public services face very tight settlements and the government is relying on efficiency savings/productivity gains to improve service quality.”
Outgoing boss of the IFS reacts to The Independent’s John Rentoul’s comment on spending review
After Rachel Reeves’ spending review was delivered to the House of Commons, The Independent’s chief political commentator, John Rentoul, responded with a post on X that said: “She’s finished. But she hasn’t said anything.”
Paul Johnson, the outgoing head of the Institute for Fiscal Studies, responded with his own disappointment at the chancellor’s speech.
He said: “Not sure I’ve ever listened to a chancellorial speech so hard to work out what is happening. Rattling off huge number of figures making it look like big increases in spending on everything.”
