The UK’s finance minister keeps public guessing over tax hikes

U.K. Chancellor Rachel Reeves gave little away Monday about where the axe could fall in the forthcoming budget, as she looks to fill a hole in Britain’s public finances.

Addressing the Labour Party’s annual conference in Liverpool on Monday, Finance Minister Reeves said she would champion Britain’s economic “renewal” ahead of the Treasury’s Nov. 26 Autumn Budget, with a focus on “the abolition of long-term youth unemployment.”

Anyone hoping for clues about plans for tax hikes or spending cuts was left disappointed, however, as the finance minister instead announced plans to get thousands of young people on benefits into paid work as part of a “Youth Guarantee” scheme.

“Every young person will be guaranteed either a place in a college, for those who want to continue their studies or an apprenticeship, to help them learn a trade vital to our plans to rebuild the country, or one-to-one support to find a job,” she told conference delegates.

“But more than that our guarantee will ensure that any young person out of work for 18 months will be given a paid work placement. Real work, practical experience, and new skills,” she said in comments released by the government in advance of her speech.

While Reeves did not specifically reference the budget, she alluded to tough choices that lie ahead, telling the audience:

“In the months ahead, we will face further tests. With the choices to come made all the harder by harsh global headwinds and the long-term damage done to our economy, which is becoming ever clearer.”

While sounding a positive note for young people, Reeves’ speech did little to dispel wider public concerns that taxes will need to rise in order to fill a growing fiscal hole.

The issue has been exacerbated by spending commitments made by Reeves in the last year, U-turns on welfare cuts and the chancellor’s determination to stick to her own self-imposed rules on balancing the books, lowering U.K. debt and only borrowing to invest.

Estimates vary, but economists suggest the chancellor could now need to find as much as an extra £50 billion ($67.16 billion) to fill the gap in the U.K.’s public finances amid substantial spending on welfare and public services, lower tax receipts and growth, and higher borrowing costs.

In her last Autumn Budget, Reeves carried out a $40 billion tax raid that largely hit British businesses and employers, raising the minimum wage and national insurance contributions they had to pay. She promised she would not hit businesses further, while the Labour Party had committed to not raising taxes on working people before coming to power in a landslide victory in July 2024.

Now, faced with her own strict rules on spending, borrowing and balancing the budget, the chancellor is highly likely to have to break promises as she seeks to to fill the fiscal hole.

Balancing the books is an unviable task for Reeves, who made headlines earlier this year after she cried in parliament. Questions over whether she might be sacked rattled markets amid accusations that she was mismanaging Europe’s second-largest economy, behind Germany.

“The Chancellor is boxed in by her own numbers and by political reality,” Nigel Green, chief executive of financial advisory firm deVere Group, said in emailed comments Monday. “Markets will demand discipline, but her party will demand action. The path of least resistance is higher taxation.”

“Investors should take seriously the risk of a broad-based tax grab,” he said, adding: “When gilt yields are this high and the deficit this wide, the Treasury will look for revenue wherever it can find it.”

Indeed both Reeves and U.K. Prime Minister Keir Starmer — who has backed her repeatedly — have signalled that tax rises could be on the immediate horizon.

Speaking to the BBC earlier Monday, Reeves refused to guarantee that she will not extend the freeze on income tax thresholds — the rates at which workers start paying higher taxes.

“I’m not going to be able to do that,” Reeves told the broadcaster, saying “the world has changed” amid trade tariffs and ongoing conflict in Ukraine and the Middle East.

She added that Labour’s pre-election commitment to not raise VAT, a tax added to most products and services, still stands, echoing Starmer’s stated position when questioned on the matter on Sunday.