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Rachel Reeves needs to be “courageous” while giving birth Budget America faces “Groundhog Day” next year with more cuts or tax increases, a think tank has warned.
The Institute for Fiscal Studies (IFS) said it expects chancellor Due to rising borrowing costs, weak growth forecasts and spending commitments made since the spring, at least £22 billion will need to be found next month.
The figure would restore the £10bn of headroom that Ms Reeves had previously left against self-imposed debt rules, although it does not include the cost of widely expected announcements on scrapping the two-child benefit cap and maintaining the cap on fuel duty.
But Indian Foreign Service Said that there was a “strong case” for the Chancellor to proceed, arguing that the £10 billion buffer was not enough to ensure sustainability and would leave him “limping from one forecast to the next”.
IFS director Helen Miller said: “For Rachel Reeves, the Budget will feel like an unprecedented day.”
He said this situation was “largely” of the Chancellor’s own making, after choosing to “operate his financial rules with such little scope”, which left him facing “run-of-the-mill forecast changes”.
The IFS said implementing major fiscal consolidation in November would be the “most direct route” to avoiding similar challenges in future years.
It acknowledged that achieving consolidation through spending cuts “will create challenges” due to the lack of parliamentary support for welfare cuts and the fact that departmental budgets were only agreed in June.
But tax increases are also not simple, with Labour’s manifesto rejecting increases in income tax, National Insurance or VAT.
Ms Miller suggested that changes to property taxes and levies such as capital gains tax or inheritance tax would make it possible to raise the needed funds, but said these were “poorly designed” and could harm growth.
The IFS also warned against soliciting “large sums of money from a small number of taxpayers”.
Instead, the think tank said the Chancellor should “be bold” and reform the tax system to make it “more rational” and have less impact on economic growth.
His comments come alongside the publication of the IFS’s annual “Green Budget”, which outlines the challenges facing the Chancellor ahead of the Budget each year.
Green budget also includes analysis barclaysWhich suggests that unemployment could rise to 5% in 2026 amid slow growth and inflation above target.
Jack Meaning, chief UK economist at Barclays, said: “With the right policy decisions, this near-term challenge can be navigated towards a more favorable medium-term outlook.
“If the Chancellor can avoid delivering an inflationary Budget, headline price rises should moderate significantly in the coming months, allowing the Bank of England to cut interest rates further and support households and businesses in driving more balanced economic growth.”
A HM Treasury The spokesperson said: “We will not comment on speculation ahead of the OBR’s forecast, which will be published on 26 November.
“The Chancellor has always been clear that she will deliver stability in the public finances, because when governments lose control of finances, working people pay the price.
“In the first half of the year we were the fastest-growing economy in the G7, but for many people our economy feels stuck.
“They are working day after day without moving forward. This needs to change, and that’s why the Chancellor will continue to cut red tape, reform outdated planning rules and invest in public infrastructure to boost growth – not a return to austerity or decline.”