Chancellor 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 Reeves to use next month's budget to announce billions in tax increases to cover a potential £30bn shortfall in public finances.
Morgan Stanley suggested that Reeves could keep bond markets satisfied by breaking Labour's promises, as this could help raise billions while limiting economic impact. However, the bank also identified measures that do not breach the spirit of the manifesto, are not outright inflationary, and can be implemented gradually.
Economists have said that welfare U-turns, elevated borrowing costs, and an anticipated productivity downgrade from the Office for Budget Responsibility could leave Reeves facing a £30bn shortfall against her fiscal rules. The OBR is expected to hand its pre-measures forecasts to the Treasury on Friday, informing the budget on 26 November.
Reeves used her conference speech to warn against abandoning fiscal responsibility, while Prime Minister Keir Starmer called the fiscal rules non-negotiable. Labour is bound by manifesto pledges not to raise income tax, national insurance, or VAT, but some senior figures have flirted with breaching these pledges.
Possible tax hikes identified by Morgan Stanley include extending the freeze of income tax thresholds by at least another year to generate £7bn–£10bn, as well as taxes on gambling, banking, council tax changes, and pension taxation overhaul. The bank said the budget is likely to be less bad than feared, with tax increases spread across sectors and extensive enough to reduce market fiscal concerns.
