Rachel Reeves has admitted both tax rises and spending cuts are being considered for the government’s upcoming Budget.
The chancellor told Sky News she was “looking at tax and spending as well,” confirming for the first time that both measures are on the table as she works to address what she described as a “very difficult” fiscal position.
Reeves is due to deliver her first full Budget on 26 November, with the Office for Budget Responsibility expected to downgrade growth forecasts and widen the estimated shortfall in the public finances. According to briefings cited by Sky News and Reuters, the Treasury faces a gap of up to £30 billion, leaving limited room to meet Labour’s fiscal rules without new revenue or savings.
“The numbers will always add up with me as chancellor,” Reeves said. “We saw just three years ago what happens when a government, where the Conservatives, lost control of the public finances: inflation and interest rates went through the roof.”
While refusing to detail which taxes might rise, Reeves sought to reassure households and investors that any measures would be fair and responsible. The government has pledged not to raise income tax, VAT, or national insurance, significantly narrowing the options available.
Banks and large companies have already stepped up lobbying efforts, warning that higher taxes could hit competitiveness. Financial services groups have told Treasury officials that the UK’s effective corporate tax burden is becoming uncompetitive relative to international peers. The British Chambers of Commerce cautioned that businesses “cannot take more tax hikes” and urged the government to focus on driving productivity instead of adding costs. The Institute for Fiscal Studies separately warned against “half-baked dashes for revenue” that risk damaging growth without tackling structural issues.
Analysts say the government’s fiscal room is constrained by its commitment to reduce debt as a share of GDP over five years. With departmental budgets largely fixed, scope for significant savings is limited, making some form of revenue increase likely. The OBR’s revised economic outlook is due later this month and will inform the Budget’s assumptions on borrowing, inflation, and interest rates. Investors will be watching closely for signs of whether Reeves leans toward raising capital gains or wealth-related taxes to preserve consumer confidence.
Reeves’ remarks mark a shift in tone from earlier caution, effectively acknowledging that difficult choices are inevitable. The Budget will set the tone for Labour’s first full fiscal plan — and for how far the new chancellor is willing to go to balance credibility with growth.
