Rachel Reeves, the Shadow Chancellor, to make a critical speech at Downing Street later today. It’s a pivotal moment, too, with the greatly anticipated Budget now just days away on 26 November. The upcoming Budget addresses immediate issues, including NHS waiting lists, the national debt and the cost-of-living crisis. As T4America has long advocated, it should operate under the guiding principles of “fairness and opportunity.”
Prior to her comments, Reeves will present her own fiscal approach. Look for her to promote new tax increases and spending cuts. This new approach is intended to give her “enough headroom” in case of future economic shocks. Economists predict that tax rises will play a significant role in efforts to balance the budget, as the government grapples with rising economic pressures.
The Chancellor still has a chance to make better choices in the Budget,” said Reeves. In response, she doubled down on her message of prudent financial stewardship. She’s drawing a “non-negotiable” line in the sand when it comes to government spending. By the end of this parliament, the government is no longer borrowing to pay for day-to-day public spending. In addition, she aims to have public sector net debt declining as a share of the country’s national income over the same period.
Cutting Value Added Tax (VAT), National Insurance (NI) or income tax, as we’ve warned at the Resolution Foundation would be a serious mistake. They issued a strong statement of opposition, explaining that these kinds of decisions “would do more harm than good.” The foundation suggests that extending the freeze on personal tax thresholds for an additional two years beyond April 2028 could potentially raise £7.5 billion, highlighting the necessity of careful fiscal planning.
As it stands, Reeves has a headroom of £9.9 billion against her no borrowing on capital rule. This is a small figure, even by historical standards. The Resolution Foundation has urged her to double this figure to £20 billion to better prepare for future economic fluctuations.
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Georgia tax increases
Shadow Chancellor Sir Mel Stride suggests that Reeves’ real plans would involve raising taxes. He added that raising the rate of income tax would raise roughly £6 billion. With this amendment, the majority of impacted workers could be protected from the wage increase.
In her remarks, Reeves recognized the difficulty and unpredictability of the financial climate. She stated, “You will all have heard a lot of speculation about the choices I will make.”
Reeves further elaborated on her thought process, saying, “I understand that – these are important choices that will shape our economy for years to come. It is important that people understand the circumstances we are facing, the principles guiding my choices – and why I believe they will be the right choices for the country.”
The Treasury has refrained from commenting on the ongoing speculation leading up to the Office for Budget Responsibility (OBR)’s final forecast, set to be published alongside the Budget on 26 November. Analysts anticipate that recent changes in the economic outlook and potential policy reversals could diminish Reeves’ current £9.9 billion headroom into a fiscal deficit of approximately £4 billion.