Rachel Reeves must raise taxes immediately to plug a fresh £50 billion hole in the public finances, according to the National Institute of Economic and Social Research, one of Britain’s most respected economics organisations. The Telegraph has more.
Slowing economic growth, a weak jobs market and the cost of Labour’s about-turns on welfare spending have combined to plunge government finances deeper into the red, the National Institute of Economic and Social Research (Niesr) warned.
The Chancellor is now on course to miss her borrowing targets by £41.2 billion, the think tank predicted. If she wants to restore the £9.9 billion of headroom maintained since last year’s Budget, Ms Reeves must therefore raise taxes or cut spending by £51.1 billion.
David Aikman, director of Niesr, said it was increasingly difficult for the Chancellor to avoid raising taxes on working people if she wanted to maintain her fiscal rules and stick to spending promises.
The forecasts will worry Downing Street given Niesr’s stature. It is Britain’s oldest independent economic think tank and was co-founded by John Maynard Keynes, the British economist who has helped to shape modern Left-wing thought.
Niesr’s economic model is highly respected globally and used by organisations such as the Treasury and the International Monetary Fund. Its president, Sir Paul Tucker, is the former deputy governor of the Bank of England.
The warning comes just a year after Rachel Reeves attacked the Conservatives for leaving an alleged £22 billion black hole in the public finances. The Chancellor used this to justify what she claimed was a “once in a generation” Budget that saw her mount a £40bn tax raid.
Ms Reeves claimed the record-breaking tax increase was necessary to fix public finances. However, the measures are widely thought to have backfired – with business confidence plummeting, unemployment jumping and inflation once again rising.
Mel Stride, the Shadow Chancellor, claimed the black hole was a result of Labour’s “economic mismanagement”.
Niesr’s dire forecast suggests the upcoming Budget could eclipse last year’s – despite the Chancellor repeatedly promising not to repeat tax rises on that scale.
Attempts to cut government spending have so far met with significant backbench rebellions, suggesting Ms Reeves will struggle to deliver significant savings this way.
Stephen Millard, the think tank’s Deputy Director, added that any move to amend borrowing rules would risk “another Liz Truss moment”. Ms Reeves has insisted her fiscal rules are “iron clad”.
As a result, tax increases appear the most likely way to plug the Budget black hole.
Mr Aikman said the Chancellor “faces an impossible trilemma: it is becoming increasingly difficult to see how the Government meets its fiscal targets, sticks to spending promises, and avoids tax increases on working people. Something will have to give.”
The scale of tax rises required would be equivalent to a 5p increase to the basic and higher rates of income tax, Mr Millard said.
“These are the really hard decisions the Chancellor is going to have to make, if she is going to raise the £50bn,” he said. “Fiddling at the edges is not going to do the job.”
Worth reading in full.
On X, Toby notes that “Government ministers rarely lost an opportunity to refer to the ‘£22 billion black hole’. Lord Livermore, a Treasury Minister, used the phrase 60 times at the dispatch box in the last 12 months. I wonder if he regrets that now?”
In the House of Lords, Government ministers rarely lost an opportunity to refer to the “£22 billion black hole”.
Lord Livermore, a Treasury Minister, used the phrase 60 times at the dispatch box in the last 12 months.
I wonder if he regrets that now? 🤔 https://t.co/2Mg8tmLo8U
— Toby Young (@toadmeister) August 6, 2025
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