Rachel Reeves could raise as much as £45bn in taxes without breaching Labour's manifesto promises, according to a report from US investment bank Morgan Stanley. The chancellor is expected to use next month's budget to announce billions in tax increases to cover a potential £30bn shortfall in public finances.
Economists at Morgan Stanley said they identified around £25bn of measures that do not violate the spirit of the manifesto, are not outright inflationary, and can be implemented gradually. The bank suggested that extending the freeze on income tax thresholds by at least another year could raise between £7bn and £10bn.
Other potential measures include taxes on gambling, the banking industry, changes to council tax, and an overhaul of pension taxation. The report noted that the most gilt market-friendly outcome would involve a breach of manifesto commitments, introducing around 1% of GDP in tax hikes next year.
The chancellor faces a series of tough tradeoffs between tax rises, spending cuts, and limiting political and economic fallout. Labour is bound by pledges not to raise income tax, national insurance, or VAT, but some senior figures have appeared to flirt with breaching these promises.
The Office for Budget Responsibility is expected to hand its pre-measures forecasts to the Treasury on Friday, which will inform the broad shape of the 26 November budget. Reeves has warned against abandoning fiscal responsibility, while Keir Starmer called the fiscal rules 'non-negotiable'.
