Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it’s investigating the financials of Elon Musk’s pro-Trump PAC or producing our latest documentary, ‘The A Word’, which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.
Rachel Reeves may be forced into fresh tax hikes or a new wave of austerity amid fears her financial buffer from October’s Budget has been wiped out, top economists have warned.
The chancellor faces having to unveil tighter spending plans than Jeremy Hunt did as chancellor due to the deteriorating state of Britain’s public finances, according to the Institute for Fiscal Studies (IFS).
In a bid to meet her self-imposed fiscal rules, Ms Reeves is this month grappling with whether to cut public spending or hike taxes again after higher borrowing costs and stagnant economic growth wiped out her £9.9 billion backstop.
The diminished headspace has left Ms Reeves with “a tiny, tiny margin relative to the uncertainties involved here”, IFS research economist Dr Isabel Stockton said.
Dr Stockton said that if the figure has been wiped out by global uncertainty, as well as poor economic performance in the UK, Ms Reeves could be forced to significantly rein in Labour’s spending plans.
In a warning which will worry Labour backbenchers, Dr Stockton said: “That would be less generous than Jeremy Hunt was planning to be.”
The IFS also warned Ms Reeves is juggling “competing commitments”, referring to her promise not to hit the country with another major round of tax increases, while also ruling out a return to austerity under a Labour government.
The commitments will be “difficult to reconcile”, Dr Stockton warned.
It has already emerged the chancellor is planning billions of pounds of cuts to benefits to shore up the public finances, with justice minister Shabana Mahmood saying there is a “moral case” for Labour more people off benefits and back into work.
And the chancellor has warned that, even if Sir Keir Starmer manages to shield Britain from Donald Trump’s tariff wars on US imports, the UK economy is set to take a hit.
On Thursday, Panmure Liberum chief economist Simon French said that, while a global economic downturn is partly responsible for the pressure on Ms Reeves, her October tax hikes and Labour’s doom and gloom after the general election are also to blame.
He said: “Whether it was the actual measures… or whether it was actually, and this is my own conclusion, the consumer confidence data, the business sentiment data, deteriorated from early August through to around October, when there was a very negative tone around the inheritance, the black hole, the broad shoulders, that Rose Garden speech by Starmer.”
He said around 80 per cent of the damage is due to factors outside the UK, adding: “I think the damage to sentiment there is that 20 per cent element that has made things harder for the chancellor.
“It wouldn’t have been so bad had they perhaps channelled some of the sort of Cool Britannia of ‘97, the last time they came into power.”
As well as welfare cuts, the government is expected to announce a programme of civil service cuts to balance the books.
But IFS director Paul Johnson warned that, with the prime minister’s plan to hike defence spending to 3 per cent of GDP in the long-run, “really tough choices” would be needed.
Mr Johnson said it is likely the chancellor will extend a freeze on tax bands, dragging more people into paying higher rates of tax, a so-called stealth tax Labour opposed when the Conservatives used it to raise money.
“It is going to be tough to find the additional money for defence, unless you are looking at taxes,” Mr Johnson added.
IFS senior research economist Ben Zaranko had little sympathy for the chancellor, blaming the October Budget for leaving her with so little breathing room against the fiscal rules.
“We leave ourselves completely exposed to those global movements, which is why we are now talking about policy changes at what was supposed to be a non-policy-making event,” he said.
