Chancellor Rachel Reeves set to deliver ‘most consequential’ Budget in over a decade

Chancellor Rachel Reeves will need to increase taxes or borrowing to avoid making cuts to public services, according to new analysis.

The Institute for Fiscal Studies (IFS) said Reeves had inherited an “unenviable” position from the last government, with taxes at historic highs and the national debt rising.

Publishing its analysis, the IFS said that just to fund public sector pay deals on a permanent basis and to avoid future cuts to public services, the chancellor will need to “top up” day-to-day spending by £30bn above her predecessor Jeremy Hunt’s plans by 2028/29.

According to the IFS’s forecast, achieving a balanced budget while avoiding cuts to public spending is on a “knife edge”. And it said increasing funding on unprotected areas such as prisons, policing and local councils would require funding to be topped up by a further £17 billion (or £47 billion in total) in 2028/29.

Reeves is set to deliver her autumn statement at the end of this month, with finance secretary Shona Robison due to set out the Scottish Government’s budget at the start of December. Last month, Robison outlined £500m worth of cuts across public services as the government in Edinburgh struggles to balance its budget following a number of public sector pay deals.

Paul Johnson, director of the IFS, said: “The first Budget of this new administration could be the most consequential since at least 2010. The new chancellor is committed to increasing investment spending, and to funding public services. To do so, she will need to increase taxes, or borrowing, or both.

“It is easy to think that we face a short-term challenge somewhat artificially created by a particular set of arbitrary fiscal rules. That would be a mistake. Pressures on health and pension spending will continue to increase, and revenues from fuel and tobacco duties will fall. That will make remaining on course for current budget balance harder over the course of this parliament. If Ms Reeves does not grasp the nettle on 30 October, it could come back to sting her again before the next election.”

A Treasury spokesperson said: “It’s right to say that we have inherited a tough financial position, but we won’t let the challenges of the past define our future.

“Despite uncovering a £22 billion black hole in our public finances we are focused on making this the most pro-growth Treasury in history, built on the rock of economic stability, including robust fiscal rules that were set out in the manifesto. That is how we will fix our public services and deliver on the promise of change.”