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Reeves to target £40bn in tax rises and spending cuts in Budget

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UK chancellor Rachel Reeves is to target £40bn in tax rises and spending cuts in her Budget this month — far more than previously expected — as she looks to patch up the NHS and Britain’s ailing public services.

The figure represents the funding that Reeves needs to protect government departments from real-terms spending cuts, cover the enduring impact of a £22bn overspend in the current fiscal year, and build up a fiscal buffer for the remainder of the parliament.

The chancellor needs to raise tax revenue or trim spending — including welfare cuts — to meet a new “golden rule” that balances day-to-day spending with tax revenues.

“Just to fill the £22bn black hole that we’ve identified would mean public services just about standing still,” said one government insider, adding that Reeves was determined to inject cash into the NHS.

The Financial Times has been told by officials close to the Budget process that the combined total would be about £40bn. The Treasury did not immediately respond to a request for comment.

Jeremy Hunt, Reeves’ Conservative predecessor, left £8.9bn of headroom against his own fiscal rule, but the new chancellor is likely to seek a bigger buffer against shocks, since she is at the beginning of a parliament.

Reeves briefed cabinet colleagues on her Budget thinking on Tuesday, ahead of submitting her final proposals to the Office for Budget Responsibility, the fiscal watchdog, on Wednesday. 

She is understood to have told cabinet: “The Budget will be about protecting working people, starting to fix the NHS and rebuilding Britain. We cannot turn around 14 years of damage in one Budget, but we can start to deliver on our promise of change.”

The Institute for Fiscal Studies said this week she would need to raise £25bn in tax if she wanted to boost spending increases to a rate that was in line with the growth of the overall economy — far higher than current plans. 

Labour also needs to meet manifesto spending pledges while raising enough funding via tax rises or welfare cuts to bolster budgets of government departments, many of which are facing real-terms cuts. 

At a one-hour cabinet meeting on Tuesday Reeves spelt out her “difficult inheritance” but said she hoped to find extra money for the NHS.

“If we are having to raise taxes, we want to put the money into the people’s priorities,” said one ally of the chancellor. “The NHS is the number one priority.”

Sir Keir Starmer, prime minister, again on Tuesday refused to rule out an increase in employer national insurance contributions, a tax on business that could raise billions of pounds.

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