IFS ‘baffled’ by spending plans as Chancellor admits GDP figures are ‘disappointing’ but refuses to rule out more tax pain
Rachel Reeves is teetering on the brink of another punishing tax raid on hard-working Britons, with experts warning she’s just a “gnat’s whisker” away from breaking her own fiscal rules after disappointing economic figures showed the UK economy shrinking.
The Chancellor faced a grilling on Sky News where she insisted her spending plans were “fully funded” but pointedly refused to rule out future tax increases, as the Institute for Fiscal Studies (IFS) expressed bewilderment at her latest spending review announcements.
In a damning assessment, the respected think tank warned that “With spending plans set, and ‘ironclad’ fiscal rules being met by gnat’s whisker, any move in the wrong direction will almost certainly spark more tax rises.”
ECONOMY IN FREEFALL
The stark warning came as The Chancellor acknowledged the reduction in GDP was “disappointing”, and blamed “uncertainty” caused by Donald Trump’s announcement of sweeping tariffs at the start of April for much of the fall.
But critics weren’t buying her excuses, with Conservative shadow chancellor Sir Mel Stride accusing Ms Reeves of “economic vandalism”.
He said: “Under Labour, we have seen taxes hiked, inflation almost double, unemployment rise, and growth fall. With more taxes coming, things will only get worse and hard-working people will pay the price.”
IFS ‘BAFFLED’ BY SPENDING CLAIMS
The Institute for Fiscal Studies delivered a scathing verdict on the Chancellor’s spending review, with economists scratching their heads at how the numbers add up.
Paul Johnson, of the Institute for Fiscal Studies, described the hospital waiting times target as “enormously ambitious”, casting doubt on whether the government’s promises can be delivered without further raids on taxpayers’ wallets.
The think tank’s analysis revealed that “Eight departments will actually see cuts to their budget between this year and the end of the parliament”, despite Reeves’ claims of increased investment across the board.
‘FULLY FUNDED’ BUT WON’T RULE OUT TAX RISES
In a tense exchange with reporters, Rachel Reeves has insisted that everything announced in her spending review is “fully funded” – but hasn’t ruled out further tax increases.
The Chancellor’s refusal to give a straight answer on future tax plans has sparked fears among businesses and families already reeling from her record-breaking £40 billion tax raid in the autumn budget.
The Conservatives say it was a “spend-now, tax-later” statement, with critics warning that ordinary workers will bear the brunt of any future tax increases.
SPENDING SPREE DESPITE WARNINGS
Despite the dire economic outlook, Reeves pressed ahead with massive spending commitments, including:
- Some £6 billion will be spent on speeding up testing and treatment in the NHS including new scanners, ambulances and urgent treatment centres aimed at providing an extra four million appointments in England over the next five years
- £39 billion boost to social and affordable housing investment
- £7 billion investment to fund 14,000 new prison places
‘NOT AUSTERITY’ BUT DEPARTMENTS FACE CUTS
While the Chancellor insisted this wasn’t an “austerity” spending review, the IFS analysis painted a different picture.
This is not an austerity Spending Review, though much of the government’s largesse, such as it is, was focused on the first two years of the parliament”, the think tank noted, warning that many departments face real pain in the years ahead.
The IFS also highlighted that “The Chancellor’s speech was full of numbers, few of them useful”, suggesting obfuscation rather than transparency from the Treasury.
LIBERAL DEMOCRATS PILE ON PRESSURE
Daisy Cooper, the Liberal Democrats‘ Treasury spokeswoman, said the figures should act as “a wake-up call for the Government which has so far refused to listen to the small businesses struggling to cope with the jobs tax.
She urged ministers to pursue closer ties with the EU to offset the economic damage, warning that small businesses are already buckling under the pressure of Reeves’ previous tax raids.
FISCAL HEADROOM ‘WIPED OUT’
The Chancellor’s room for maneuver has all but disappeared, with economists warning she’s painted herself into a corner.
According to the IFS, “The crux is that most departments will have larger real-terms budgets at the end of the parliament than the beginning, but in many cases much of that extra cash will have arrived by April.
This front-loading of spending means tough times ahead, with “Day-to-day public service funding is currently set to grow by 1.3% per year in real terms after 2025–26″ – barely enough to keep pace with demand.
WHAT HAPPENS NEXT?
With the economy shrinking and fiscal rules hanging by a thread, all eyes are on whether Reeves will be forced into another humiliating tax U-turn.
The Chancellor has promised not to increase taxes “on the same scale” as her autumn budget, but her refusal to rule out increases entirely has left businesses and families bracing for more pain.
As one Treasury insider put it: “She’s running out of road, and the only direction left is to reach deeper into people’s pockets.
Image credit:
Rachel Reeves (Official Cabinet Portrait, July 2024 – cropped version)
by Lauren Hurley / No 10 Downing Street, Wikimedia Commons, licensed under the UK Open Government Licence v3.0, source
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