Chancellor Rachel Reeves Rules Out Further Tax Hikes Despite Fiscal Pressure
Chancellor Rachel Reeves has today moved to downplay the prospect of implementing additional tax increases following her aggressive Budget measures. Speaking to an audience of business leaders at the World Economic Forum in Davos, Ms Reeves sought to provide reassurance that no further action would be necessary to stabilise the nation's public finances.
Reassurances Amid Economic Uncertainty
Addressing a Bloomberg event, the Chancellor stated clearly: 'We will not need to do more on that front.' This declaration echoes her previous commitment made after her substantial first Budget in 2024, where she pledged not to raise taxes again. However, concerns are mounting regarding the government's fiscal position, which appears increasingly constrained despite the £22 billion 'headroom' that Ms Reeves established last November.
This financial leeway was designed to ensure the government meets its primary fiscal target, which mandates that revenues must cover day-to-day expenditure within a three-year timeframe. Nevertheless, several prominent economists have suggested that approximately two-thirds of this margin may have already evaporated. This deterioration is attributed to a combination of policy reversals, diminished GDP growth projections, and a significant shortfall in defence funding.
Global Trade Tensions and Diplomatic Stance
The economic landscape is further complicated by international trade tensions, notably former US President Donald Trump's threats against NATO allies concerning Greenland. These developments have sparked warnings that the UK economy could face substantial negative impacts from renewed global instability.
In response to these concerns, Ms Reeves advised during a Bloomberg TV interview: 'I would just urge people to keep cool heads. That's what we did all through last year and it actually served us pretty well.' She added, 'And whilst trade barriers are going up around the world at the moment, we can all see that, I think last year barriers to trade with the UK have fallen.'
During a later panel discussion in Davos, sitting alongside US Secretary of Commerce Howard Lutnick, the Chancellor emphasised the UK's role as America's 'strongest ally'. She elaborated on the importance of international cooperation, stating: 'You are a much bigger economy, and we can't do everything on our own, nor should we try to, because we'd end up doing nothing well. We do have real strengths in the UK, in our defence sector, in life sciences, in business and financial services, but we do rely on our allies as well.'
Ms Reeves continued, highlighting the mutual dependence between nations: 'And even a country as big and as strong as America also relies on its allies, and I guess the sort of area where I think that we do need to sort of continue that dialogue between countries that share each others' values, is how we can work together in our mutual interests to advance our values in a very unstable and uncertain world?'
Fiscal Rules and Future Budget Plans
The Chancellor has taken steps to prevent the Office for Budget Responsibility from making an official declaration in March regarding whether she is meeting her fiscal rules. However, the OBR will still provide an updated assessment and revised economic forecasts. Ms Reeves remains adamant that there will be no fiscal package announced in March, with the next significant changes deferred until the Autumn statement.
Having notably broken her 2024 promise that the tax burden would not increase from its record high, the Chancellor stated after the last Budget: 'I reserve the right to be able to take action at any point. But I believe the headroom that we have and the changes we have made means I won't need to do that in the spring. Of course I reserve the right at any time to take action.'
Bank of England's Geopolitical Concerns
Meanwhile, Bank of England Governor Andrew Bailey has warned that the central bank must remain 'very alert' to the potential impacts arising from heightened geopolitical tensions. Speaking to MPs at Parliament's Treasury Committee, Mr Bailey noted: 'The level of geopolitical uncertainty and geopolitical issues is a big consideration, because they can have financial stability consequences.'
He provided context, stating: 'Let me put that in a bit of context in two respects. One, having said that, growth in the world economy was a lot more stable than we thought it would be. The second point is about financial markets and is a fairly similar point, that we worry considerably about how markets react to those things.'
Mr Bailey observed that market reactions have been 'more muted than we would have feared and expected,' but cautioned: 'Overriding those points, I take neither of those as a point of assurance. We have to be very alert to these things.'
