Tax rises 'now inevitable' to pay for Reeves's £2trn spending

Economists have warned Rachel Reeves's £2.2 trillion spending plans could mean more pain in the pocket for British taxpayers in the future. The Chancellor was triumphant as she delivered her vision for boosting the budgets of the health and defence budgets, as well as setting out more cash for nuclear, new homes and transport projects.

Despite her humiliating U-turn on winter fuel payments for pensioners, Ms Reeves has forged ahead with controversial levies on farmers and National Insurance hikes for employers. And economists warn cash could be sucked out of taxpayers to pay for the Chancellor's spending plans.

So far, Ms Reeves has promised not to raise income tax, VAT or corporation tax to pay for her spending, but possible taxes could hit savers, pension tax relief schemes and council tax bills. The Chancellor claimed her plans would "deliver the priorities of the British people", adding that her costs were already paid for in taxation and borrowing with her own fiscal rules.

But Paul Dales, from Capital Economics, told The i Paper: “We don’t think the spending review changes much for the Budget in October. It seems to be the case that various developments will erode the Chancellor’s headroom by £16-23bn by the Budget. That money will have to be raised by either more spending cuts, more borrowing or more tax rises. The scope for the first two is limited.”

And Thomas Pugh, from consultancy RSM, told the publication Ms Reeves could need to find an extra £20 billion in revenue. Mr Pugh said: “Cementing in big spending rises in health and defence while pencilling in big real-term cuts in other departments make tax rises in the autumn even more likely. Given the recent U-turns on welfare and higher interest rates, she probably will need to find about £20bn.”

Speaking to GB News about ruling out tax rises at the next Budget, Ms Reeves said: “Every penny of this is funded through the tax increases and the changes to the fiscal rules that we set out at last autumn. We’re not spending a penny more or a penny less than the envelope that we set last autumn.”

But Shadow Chancellor Sir Mel Stride told MPs that Wednesday's spending review was a "fantasy" and "not worth the paper that it is written on".

Responding to Ms Reeves's spending plans, the Conservative frontbencher told the Commons: "This is the spend now, tax later review, because (the Chancellor) knows she will need to come back here in the autumn with yet more taxes and a cruel summer of speculation awaits.

"How can we possibly take this Chancellor seriously after the chaos of the last 12 months?"

Sir Mel labelled Ms Reeves "the tinfoil Chancellor, flimsy and ready to fold in the face of the slightest pressure", who he said was "weak, weak, weak".

He added: "She is constantly teetering on the edge of blowing her fiscal rules, which she already changed to allow even more borrowing.

As part of the Government's plans, departmental budgets are forecast to grow by an annual average of 2.3% across the period 2023/24 to 2028/29.

Ms Reeves also promised a "record cash investment in our NHS", with an extra £29 billion per year for day-to-day running costs, plus money for rail projects including £3.5 billion additional funding for the TransPennine route upgrade between York and Manchester, and £2.5 billion more for the Cambridge-to-Oxford East West Rail.