Chancellor Reeves Hints £40bn Tax Hikes Amid Welfare U-Turns

Chancellor Rachel Reeves has signaled that further tax rises may be necessary in the upcoming autumn Budget to address a potential £40 billion shortfall in public finances caused by downgraded economic forecasts and government U-turns on welfare reforms. Despite her previous pledge not to raise taxes again after last year's record-breaking Budget, Reeves has indicated that maintaining fiscal discipline and her government's borrowing rules will likely require tax increases rather than additional borrowing or spending cuts. Economists from the Institute for Fiscal Studies warn that the government faces a “perfect storm” of challenges, including increased welfare spending and a gloomy economic outlook, which could force significant tax hikes. Reeves has also faced political pressure from Labour MPs opposing welfare cuts, with the government conceding on benefits such as Personal Independence Payments and the winter fuel allowance, adding to the fiscal strain. The Bank of England may respond to these tax hikes with deeper interest rate cuts, as higher taxes could reduce inflation and demand, allowing for easier monetary policy to support growth. Prime Minister Sir Keir Starmer has publicly backed Reeves amid market concerns about fiscal stability following her emotional appearance in the House of Commons.