Economists warn Chancellor Rachel Reeves her fiscal strategy may be fundamentally flawed. The National Institute of Economic and Social Research cautioned that the government needs £50 billion in spending cuts and tax rises to stabilize public finances.
NIESR warns Reeves' current £20 billion fiscal headroom falls dangerously short. Her flagship deregulation agenda will not deliver growth benefits within the current parliament, the institute found.
The economic research institute recommended building a £30 billion fiscal buffer to withstand future economic shocks. NIESR Director David Aikman said: "The trajectory of UK public debt is becoming unsustainable. Five years on from the pandemic, this is the moment to reverse that drift and start bringing debt down."
Professor Stephen Millard, NIESR's Deputy Director for Macroeconomics, delivered a stark assessment of the Chancellor's deregulation plans. He told a NIESR reporter: "The big problem is that, even if you are going to get higher growth through deregulation, it takes time for that higher growth to kick in." Millard added: "I'd be very surprised if you saw it in the growth numbers within the next five years." The economist stressed that while deregulation may boost long-term growth, it won't help address immediate fiscal challenges.
Tax reform pressure
A coalition of think tanks across the political spectrum is urging Reeves to overhaul what they call a "broken" tax system in the upcoming November 26 budget. Arun Advani, Director of CenTax, coordinated a report stating: "The UK's tax code is riddled with inconsistencies and distortions that discourage investment, penalise work and hold back productivity."
NIESR specifically recommended the Chancellor raise the basic rate of income tax by at least two pence to address a projected £38.2 billion shortfall by 2029-30.
The fiscal pressures come as the Chancellor also considers cutting energy bills by reducing VAT and green levies. Treasury sources suggest the package could save households up to £170 annually but faces strong opposition from energy industry leaders who warn it could jeopardize billions in investment.
Energy UK Chief Executive Dhara Vyas told The Guardian the move would be a shortsighted and disastrous move.
NIESR projects UK growth will fall from 1.5 percent this year to 1.2 percent in 2026. NIESR's analysis found many firms are adopting defensive positions due to cost pressures and uncertainty over future tax changes, complicating the government's growth mission.
Note: This article was created with Artificial Intelligence (AI).
