Rachel Reeves could raise as much as £45bn in taxes without breaking Labour's manifesto promises, according to a report from Morgan Stanley. The US investment bank's economists said they expect the chancellor to use next month's budget to announce billions of pounds in tax increases to cover a potential £30bn shortfall in the public finances.
Morgan Stanley argued that Reeves faces tough tradeoffs between tax rises, spending cuts, and limiting political and economic fallout. Bruna Skarica, the bank's chief UK economist, said: 'Tax-wise, we can see [about] £25bn of measures that don’t breach the spirit of the Labour manifesto, are not outright inflationary, and can be implemented at a gradual pace.'
The report suggested that Reeves could keep bond markets satisfied by breaking Labour's promises, as this could help raise billions while limiting economic impact. However, it noted that the chancellor could raise taxes elsewhere without stoking inflation. Possible measures include extending the freeze on income tax thresholds, taxes on gambling and banking, changes to council tax, and an overhaul of pension taxation.
The Office for Budget Responsibility is expected to hand its pre-measures forecasts to the Treasury on Friday, which will inform the 26 November budget. Reeves has warned against abandoning fiscal responsibility, while Prime Minister Keir Starmer has called the fiscal rules 'non-negotiable'.
