Tax rises and spending cuts in the cards, UK finance minister hints

U.K. Chancellor Rachel Reeves has admitted that tax rises and spending cuts are being considered in the forthcoming budget, signaling the government could be prepared to sacrifice a previous pledge not to hike levies on workers.

“Of course, we’re looking at tax and spending as well,” the finance minister told Sky News, when asked how she would deal with the country’s economic challenges in her Nov. 26 Autumn Budget, when she presents Labour’s fiscal plans for the year ahead.

“I would always make sure that the numbers add up. And of course, challenges are being thrown our way, but I won’t duck those challenges,” she told the broadcaster in an interview published Wednesday, indicating that she will stick by her “iron clad” fiscal rules, the main one being that day-to-day spending is funded by tax receipts, rather than borrowing.

To make those numbers add up, and to bung a fiscal hole that could be as much as £50 billion ($66.8 billion), Reeves is faced with three unpalatable options: Break her own rules and rattle markets, or raise taxes and cut spending, likely upsetting both voters and Labour lawmakers.

The Labour Party had pledged in its 2024 election manifesto that it would not raise raise taxes on working people, specifically National Insurance contributions (which fund social security and pensions), income tax thresholds, or VAT.

Reeves had also said she would not conduct another tax raid on businesses after they bore the brunt of £40 billion worth of tax hikes in last year’s Autumn Budget.

Attempts to cut state expenditure on welfare have gone down badly with Labour lawmakers this year, leading to government U-turns on social security cuts and reforms, putting further pressure on the government to find savings, or hike taxes, elsewhere.

There are concerns that tax rises could impinge on already lackluster economic growth. On Tuesday, the International Monetary Fund released its latest economic outlook which forecast U.K. growth of 1.3% in 2025 (an upgrade from the previous projection) and again 1.3% in 2026 (a slight downgrade).

Reeves and Prime Minister Keir Starmer have not previously confirmed that tax rises and spending cuts are on the horizon but both have appeared to be preparing the public and party members, that they are necessary.

Starmer told the Labour Party conference in September that “the path of renewal … requires decisions that are not cost-free or easy. Decisions that will not always be comfortable for our party.”

Reeves, meanwhile, told the party faithful that “in the months ahead, we will face further tests. With the choices to come made all the harder by harsh global headwinds.”