After a year in office, UK Chancellor Rachel Reeves is under pressure as a faltering economy and bond market turbulence increase the likelihood of new tax hikes.
Wednesday saw the biggest drop in UK government bond prices since the financial crisis sparked by Liz Truss’s 2022 budget, following Reeves’ emotional remarks in Parliament.
Simultaneously, Labour faced internal rebellion over welfare reforms, leading to a partial retreat on proposed cuts.
These events have raised concerns about Labour’s control over spending and fiscal policy.
Analysts Say Major Tax Rises Likely
Economists believe Reeves may need to raise tens of billions in new taxes later this year.
Michael Saunders, a senior adviser to Oxford Economics and former Bank of England official, said, “The economy is still stuck with sluggish growth. That means voters are persistently disappointed.”
He added that the government lacks the resolve to make the deep fiscal adjustments needed to restore financial credibility.
Starmer and Reeves Promised Stability
When Reeves and Prime Minister Keir Starmer came to power, they promised to restore political and economic stability after 14 years of Conservative rule.
To gain investor trust, Reeves imposed strict fiscal rules and introduced £40 billion in tax hikes in her first budget.
She previously labeled those hikes as a one-time measure to fund critical infrastructure.
But the policy reversal on welfare and a projected economic slowdown have eroded her fiscal margin.
Ben Zaranko of the Institute for Fiscal Studies said another major tax-raising budget “is very much within the realms of the possible.”