Rachel Reeves could raise up to £45bn in taxes without breaching the spirit of Labour’s manifesto promises, according to a report from Morgan Stanley. The US investment bank’s economists said the chancellor could use next month’s budget to announce billions in tax increases to cover a potential £30bn shortfall in public finances.
Bruna Skarica, the bank’s chief UK economist, said: “Tax-wise, we can see [about] £25bn of measures that don’t breach the spirit of the Labour manifesto, are not outright inflationary, and can be implemented at a gradual pace.” The report noted that welfare U-turns, elevated borrowing costs, and a potential productivity downgrade from the Office for Budget Responsibility could leave Reeves facing a £30bn deficit against her fiscal rules.
Morgan Stanley suggested that extending the freeze on income tax thresholds by at least another year could raise between £7bn and £10bn. Other potential measures include taxes on gambling, the banking industry, changes to council tax, and an overhaul of pension taxation. The bank said the most “gilt market-friendly outcome” would involve tax hikes of about 1% of GDP, even if that meant breaking manifesto commitments.
Reeves has faced pressure from business leaders warning against tax rises targeting industry, while Labour is bound by pledges not to raise income tax, national insurance, or VAT. The chancellor used her conference speech to warn against abandoning fiscal responsibility, and Keir Starmer described the fiscal rules as “non-negotiable”.
