Chancellor Rachel Reeves is Considering A New Strategy To Increase Tax Revenue

Pensioners and wealthy individuals could face tax increases in Rachel Reeves’s autumn budget if the economic situation continues to worsen, according to the Institute for Fiscal Studies (IFS).

Following the chancellor’s spring statement, which included deep welfare cuts to meet her fiscal targets, the UK’s leading public finance experts have suggested that Reeves may have to introduce tax hikes later this year.

Paul Johnson, director of the IFS, warned that a “risky and changing world – as President Trump’s actions overnight on tariffs demonstrate all too well” has already put Reeves’s policies at risk of becoming outdated.

“There is a good chance that economic and fiscal forecasts will deteriorate significantly between now and an autumn budget,” he said. “If so, she will need to come back for more, which will likely mean raising taxes even further.”

In a politically charged Commons statement on Wednesday, the chancellor outlined a £14bn package of measures to restore £9.9bn of headroom against her self-imposed fiscal rules. This followed a sharp deterioration in public finances since the autumn.

The move comes amid rising government borrowing costs in global markets, driven by both domestic factors and Trump’s policies, which have threatened global growth and could reignite inflation. Without the spring statement measures, the Office for Budget Responsibility (OBR) projected a £4.1bn deficit against Reeves’s primary fiscal rule, which requires that day-to-day government spending be covered by tax revenues.

However, Johnson pointed out that the economic landscape is shifting rapidly and that Reeves has left an unusually slim margin of headroom against her fiscal rules, which could quickly disappear.

“That risks months of speculation over what those tax rises might be – a raid on pensions, a wealth tax on the richest, another hike to capital gains tax?

“I mention those not to commend them, far from it, but to exemplify the kinds of taxes regarding which mere speculation about increases can cause economic harm. With no sense of a tax strategy, we have no idea which way the chancellor might turn,” he said.

The OBR warned that its worst-case scenario for Trump’s trade war escalation could completely erase the chancellor’s headroom. Hours after Reeves spoke, Trump underscored this uncertainty by announcing a punitive 25% tariff on all car imports to the US.

Labour has committed to “non-negotiable” fiscal rules that limit government borrowing capacity. Ahead of the general election, the party also pledged not to raise income tax, VAT, or national insurance and to maintain the main corporation tax rate at 25%.

Johnson noted that additional spending cuts would be difficult, given that Reeves is about to finalize her plans in the June spending review, making revisions challenging. Further welfare reductions, following the backlash to the spring statement, would also be politically tricky.

The “easiest” solution for Reeves, he suggested, would be extending the freeze on personal allowances for income tax and national insurance, potentially raising around £10bn for the Treasury.

Pensions could also be in the spotlight, along with possible reforms to capital gains tax, which would primarily impact wealthier individuals.

“One of the reasons I worry about pensions taxation is it looks like a nice juicy place to go for a lot of money,” he said.

Reflecting on previous speculation before the October budget, Johnson pointed out that rumors surrounding pensions taxation had prompted individuals to adjust their financial planning—even though the chancellor ultimately took no action.

“Given that she didn’t do anything back in that budget, I really wish the chancellor had said ‘and I am not going to do anything for the rest of this parliament,’ so I suspect we will have that speculation again.”