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 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’s chief UK economist, Bruna Skarica, said about £25bn of measures could be implemented that do not breach the spirit of the Labour manifesto, are not outright inflationary, and can be phased in gradually. The report comes amid speculation following Labour’s party conference in Liverpool, where Reeves faced tough tradeoffs between tax rises, spending cuts, and limiting political and economic fallout.
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. Economists have warned that welfare U-turns, elevated borrowing costs, and an anticipated productivity downgrade could leave Reeves facing a £30bn shortfall against her fiscal rules.
Reeves used her conference speech to warn against abandoning fiscal responsibility, while Prime Minister Keir Starmer told delegates the fiscal rules were “non-negotiable”. This followed suggestions from Greater Manchester Mayor Andy Burnham that Labour should not be “in hock” to global bond markets. The chancellor has also faced lobbying from business leaders warning against tax rises targeted at industry, while Labour is bound by manifesto pledges not to raise income tax, national insurance or VAT.
Morgan Stanley suggested Reeves could keep bond markets satisfied by breaking Labour’s promises, which could help raise billions while limiting economic impact. The bank listed possible tax hikes including extending the freeze on income tax thresholds (raising £7bn-£10bn), taxes on gambling, banking, council tax changes, and pension taxation overhaul. It concluded the budget is likely to be “less bad than feared” with tax increases spread across sectors, reducing market fiscal concerns.
