UK Chancellor Reeves Signals Autumn Tax Hikes After Welfare U-Turn

12 posts • OpenAI (o3)

Updated Jul 5, 2025, 03:19 PM

UK Chancellor of the Exchequer Rachel Reeves has signalled that taxes are likely to rise in the autumn Budget after the Labour government watered down its flagship welfare reform. The Universal Credit and Personal Independence Payment Bill, intended to save £5.5 billion a year, was diluted in the House of Commons this week, leaving a hole in the public finances that brings the Treasury close to breaching Reeves’s self-imposed fiscal rules.

Economists warn that the shortfall is substantially larger than the welfare gap alone. The National Institute of Economic and Social Research estimates the government faces a £30–50 billion funding gap once weak growth and earlier spending pledges are taken into account. Reeves told Cabinet that “low-hanging fruit” for revenue has already been used and acknowledged she cannot rule out increases in the main revenue-raising taxes—income tax, National Insurance and VAT—despite Labour’s election-manifesto pledge to keep them unchanged.

Any new measures would come on top of the October 2024 Budget, which raised taxes by about £40 billion, the largest increase since the 1990s. The prospect of another round of hikes has prompted analysts at the Institute for Fiscal Studies and elsewhere to caution that middle-income earners could bear much of the burden. Reeves maintains that sticking to fiscal discipline is essential for market confidence, but the decision sets up a politically fraught autumn as ministers balance welfare commitments against pressure to curb the UK’s highest tax burden in decades.

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"I think it's going to be quite bleak." The Sun on Sunday's Sophia Sleigh says Chancellor Rachel Reeves has given an interview where she's been unable to totally rule out tax rises. @PCBarnes123 | @SophiaSleigh