Rachel Reeves may raise taxes or cut spending to strengthen fiscal rules
The Sunday Telegraph reported that British finance minister Rachel Reeves aims to create a larger buffer against her primary fiscal rule in next month’s budget to better shield government finances from future shocks.
In her March spring statement, Reeves mentioned that her spending and tax strategies would maintain a 9.9 billion pound ($13 billion) fiscal buffer against her primary goal of balancing routine public spending with tax revenues by 2030.
Since then, the government’s borrowing costs have increased more than anticipated, a plan to save 5 billion pounds a year in welfare costs has been abandoned, and Britain’s budget watchdog has indicated it will lower its growth forecasts.
Economic think tanks now predict that Reeves will need to raise about 30 billion pounds in tax increases at the November 26 budget.
On Sunday, the Telegraph referenced Treasury sources saying Reeves also plans to boost the buffer to better protect government finances from market volatility and increasing borrowing costs.
This raises the possibility that she might have to increase taxes or cut spending to establish a larger buffer. Reeves raised taxes by 40 billion pounds last year, an action she stated she would not repeat.
Any initiative to increase the buffer might be welcomed by economists and think tanks, which have cautioned that the limited margin could lead to speculation on tax increases or spending cuts during the biannual assessments of fiscal rules, potentially impacting the economy.
A Treasury spokesperson, when asked about the possibility of a higher buffer, stated that Reeves’ fiscal rules help maintain low interest rates while prioritizing investment to support long-term growth.
"This is the responsible choice - to reduce our levels of borrowing in the years ahead, so we can spend more on our public services, prioritize the needs of working people, and spend less on servicing debt," the spokesperson said.
Technology & Business Editor
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