‘Good chance’ Reeves will have to raise taxes in autumn budget, thinktank says – UK politics live
Institute for Fiscal Studies says there’s good chance Reeves will have to raise taxes in autumn
The Institute for Fiscal Studies has also released its considered verdict on the spring statement this morning. Like most thinktanks, it was also commenting yesterday, but the full number-crunching analysis takes a while.
Here are some of the key points from the opening presentation by Paul Johnson, the IFS’s director.
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Johnson said that there is a good chance that Rachel Reeves will have to raise taxes in the autumn. And he claimed speculation about what taxes might rise could be economically damaging. He explained:
There is a good chance that economic and fiscal forecasts will deteriorate significantly between now and an autumn budget. If so, she will need to come back for more; which will likely mean raising taxes even further. 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.
Reeves did not accept this when this point was put to her in interviews this morning. (See 8.07am.)
We had £9.9bn of headroom in October. We have £9.9bn of headroom today. Astonishingly the numbers are within a mere £2m of one another. It is hard to believe this is a fluke. The Treasury has clearly worked overtime to ensure that precisely the same fiscal headroom remains today as was projected in October. This is not sensible.
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He said that, while the sickness and disability benefit cuts announced last week were “defensible” (because costs were rising so much), the decision to announce an extra £500m in cuts yesterday, just to make sure the fiscal headroom figure did not change, was a mistake.
Whilst unquestionably tough for those on the receiving end, those original cuts were defensible as a response to problems manifested by huge increases in numbers of claimants, and in spending. One could make a defence of them unrelated to the details of any particular fiscal rule. Coming back a week later with just a slightly bigger cut because that’s what’s needed to return the fiscal headroom to precisely where it was a few months ago risks undermining that case and discrediting attempts at genuine reform to the benefit system. If it was right last week to announce a halving of the health component of universal credit, it is hard to see why this week it is right to do more than that by halving it and then freezing it in cash terms.
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He said having little fiscal headroom, and then applying the fiscal rules rigidly, was “not conducive to a sensible policymaking process”.
It is the combination of “iron-clad” pass/fail numerical fiscal rules and next to no headroom against them that is causing so many problems, leaving fiscal policy completely exposed to economic developments outside the government’s control. That is not conducive to a sensible policymaking process. This is not the OBR’s fault. It is the product of the chancellor’s choices.
Spending growth is now set to be 2.5% in 2025-26, 1.8% in 2026-27 and 1.0% in each of the subsequent three years. One should always be sceptical of plans to be prudent, but only in the future. Front-loaded or not, the problem for the chancellor is that keeping to these growth rates overall will inevitably mean cuts for some departments in the years to come.
Key events
Starmer suggests ‘coalition of willing’ leaders discussed tightening sanctions on Russia at Paris meeting
Keir Starmer has hinted that he would like to see more sanctions imposed on Russia. In brief comments to reporters at the end of today’s “coalition of the willing” summit, he said there was “complete clarity that now is not the time for lifting of sanctions.” He went on:
Quite the contrary, what we discussed is how we can increase sanctions to support the US initiative, to bring Russia to the table through further pressure from this group of countries.
Jakub Krupa has more on this on his Europe live blog.
Starmer is due to hold a formal press conference any minute now.
Libby Brooks
Libby Brooks is the Guardian’s Scotland correspondent.
There was a very different tone struck at first minister’s questions today, with Holyrood still reeling from the news that Scottish government minister Christina McKelvie has died at the age of 57. (See 12.21pm.)
Members across parties and at all levels of seniority were visibly shell-shocked and emotional following the announcement by McKelvie’s partner, SNP depute Keith Brown, that she had died this morning. The drugs and alcohol minister stepped back from parliamentary duties last summer after revealing that she had secondary breast cancer.
McKelvie, who was first elected in 2007, was held in deep affection and it was notable how many women MSPs described how she had taken them under her wing when they first joined Holyrood.
The usual combative questioning at FMQs was far more muted, though John Swinney had opportunity to take a swipe at yesterday’s spring statement, saying it would make his mission to eradicate child poverty much harder, and highlighting the direct impact that welfare cuts will have on Scottish government finances, with the Fraser of Allander Institute estimating they may amount to a £400m loss to Scotland’s block grant.
IFS says pro-job measures in benefits reform package will only have ‘small’ poverty reduction impact
Rachel Reeves said in an interview this morning that she was “absolutely certain” that the government’s sickness and disability cuts would not increase overall poverty numbers. That was because they would lead to more people getting jobs, she argued. (See 8.46am.)
But the Institute for Fiscal Studies has cast doubt on this argument. In one of the presentations at the news conference this morning, where it was giving its detailed assessment of the spring statement, it said the pro-job measures in the Pathways to Work green paper would just have a “small” poverty-reduction impact.
Here is the relevant slide from the presentation.
There is an example of how hard it can be to get people off sickness and disability benefits and into work in the Pathways to Work green paper published last week. As an example of a good programme in this area, the green paper cites additional work coach support, saying this can increase people’s chances of getting a job by a third. But the figures show this means 11% of participants finding work, instead of 8% in the control group. Paragraph 226 says:
We have good evidence that when people receive support it has an impact. For example, additional work coach support, where people on the health journey spent more time with a work coach, found that voluntary participants in the LCWRA [limited capability for work-related activity – a universal credit category for people judged too sick to work] group were a third more likely to be in work than a comparison group 12 months later. 11% of participants were in work 12 months later, compared to 8% of the comparison group.
Keir Starmer is expected to hold his press conference in Paris within the next half an hour.
Swinney leads tributes after Scottish government minister Christina McKelvie dies aged 57
Scottish government minister Christina McKelvie has died at the age of 57, PA Media reports. PA says:
McKelvie took medical leave from her role as the alcohol and drugs policy minister last year to seek treatment for secondary breast cancer.
Keith Brown – SNP depute leader and McKelvie’s long-time partner – announced the news in a statement today. He said that McKelvie “lit up every room she was in with her positivity and bright smile” and that he and her sons were “heartbroken”.
First minister John Swinney said he was “devastated” at McKelvie’s death, describing the Hamilton, Larkhall and Stonehouse MSP as “one of the kindest and most generous people I have ever met in my life”.
MSPs openly wept in the Holyrood chamber as tributes were paid to McKelvie.
Swinney posted this on social media.
I am devastated at the passing of Christina McKelvie MSP, Minister for Drugs and Alcohol Policy and one of the kindest and most generous people I have ever met. A force of nature, Christina enhanced the lives of all around her. My deepest sympathy to Keith, Jack and Lewis. pic.twitter.com/tHzb5tOw35
— John Swinney (@JohnSwinney) March 27, 2025
Welfare minister Stephen Timms rejects claim that cuts to sickness and disability benefit being ‘rushed’
Stephen Timms, the welfare minister, has rejected claims that the changes to sickness and disability benefits are being rushed.
He was speaking in the Commons in response to an urgent question from Steve Darling, the Lib Dem work and pensions spokesperson, who said that any changes to the benefits system should be introduced in a “caring and compassionate” way, and not “rushed”.
Timms replied:
I very much agree with him that this all needs to be done in a managed and compassionate way. That is exactly how we’re doing it.
I don’t agree with him that it’s being rushed. The changes won’t happen for over 18 months until November 2026, that’s when the change will take effect and they won’t affect current recipients of personal independence payments until their first award review after November 2026 and typically review periods are three years, so this is definitely not being rushed, it’ll happen in a properly planned, staged and careful way.
Institute for Fiscal Studies says there’s good chance Reeves will have to raise taxes in autumn
The Institute for Fiscal Studies has also released its considered verdict on the spring statement this morning. Like most thinktanks, it was also commenting yesterday, but the full number-crunching analysis takes a while.
Here are some of the key points from the opening presentation by Paul Johnson, the IFS’s director.
-
Johnson said that there is a good chance that Rachel Reeves will have to raise taxes in the autumn. And he claimed speculation about what taxes might rise could be economically damaging. He explained:
There is a good chance that economic and fiscal forecasts will deteriorate significantly between now and an autumn budget. If so, she will need to come back for more; which will likely mean raising taxes even further. 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.
Reeves did not accept this when this point was put to her in interviews this morning. (See 8.07am.)
We had £9.9bn of headroom in October. We have £9.9bn of headroom today. Astonishingly the numbers are within a mere £2m of one another. It is hard to believe this is a fluke. The Treasury has clearly worked overtime to ensure that precisely the same fiscal headroom remains today as was projected in October. This is not sensible.
-
He said that, while the sickness and disability benefit cuts announced last week were “defensible” (because costs were rising so much), the decision to announce an extra £500m in cuts yesterday, just to make sure the fiscal headroom figure did not change, was a mistake.
Whilst unquestionably tough for those on the receiving end, those original cuts were defensible as a response to problems manifested by huge increases in numbers of claimants, and in spending. One could make a defence of them unrelated to the details of any particular fiscal rule. Coming back a week later with just a slightly bigger cut because that’s what’s needed to return the fiscal headroom to precisely where it was a few months ago risks undermining that case and discrediting attempts at genuine reform to the benefit system. If it was right last week to announce a halving of the health component of universal credit, it is hard to see why this week it is right to do more than that by halving it and then freezing it in cash terms.
-
He said having little fiscal headroom, and then applying the fiscal rules rigidly, was “not conducive to a sensible policymaking process”.
It is the combination of “iron-clad” pass/fail numerical fiscal rules and next to no headroom against them that is causing so many problems, leaving fiscal policy completely exposed to economic developments outside the government’s control. That is not conducive to a sensible policymaking process. This is not the OBR’s fault. It is the product of the chancellor’s choices.
Spending growth is now set to be 2.5% in 2025-26, 1.8% in 2026-27 and 1.0% in each of the subsequent three years. One should always be sceptical of plans to be prudent, but only in the future. Front-loaded or not, the problem for the chancellor is that keeping to these growth rates overall will inevitably mean cuts for some departments in the years to come.
Nearly 4m hours of raw sewage dumped in England’s waters last year
Almost 4m hours of raw sewage was discharged into rivers and coastal waters in England last year, with waterways that have the highest environmental protections subjected to days of pollution, Sandra Laville and Michael Goodier report.
Scottish government will ‘look at every lever’ available to avoid benefit cuts, finance secretary says
Shona Robison, the Scottish finance secretary, has said that the Scottish government will “look at every lever” it can pull to avoid cutting benefits.
Speaking on BBC Radio Scotland this morning, she said:
We have invested in social security, things like the Scottish child payment for example, which is keeping thousands of children out of poverty.
We’re in the business of keeping people out of poverty, not pushing children particularly into poverty.
So we have made decisions over the years to prioritise the spend on our most vulnerable.
In terms of going forward, the announcements yesterday are going to have a major impact on our budgets in the coming years and what we will be doing is to look at every lever we can use to avoid having to replicate the decision the UK Labour government have made.
Under devolution, the Scottish government can now diverge from Westminster policy in some areas in relation to benefits. But much welfare policy is still determined in London and, according to the Fraser of Allander Institute, a thinktank, the spring statement decisions will lead to the Scottish government’s budget being “around £900m worse off on the current side in 2029-30 than previously projected”.
Child poverty reached almost 4.5m last year, highest level for more than 20 years, figures show
The number of children living in poverty in the UK has reached the highest level for more than 20 years, PA Media reports. PA says:
The official figure comes a day after government estimates suggested welfare cuts will plunge thousands more children below the poverty line by the end of the decade.
There were 4.45 million children estimated to be in households in relative low income, after housing costs, in the year to March 2024, data published by the Department for Work and Pensions shows.
The latest figure is the highest since comparable records for the UK began in 2002/03.
It rose from an estimated 4.33 million in the year to March 2023.
A household is considered to be in relative poverty if it is below 60% of the median income after housing costs.
The Child Poverty Action Group said the number of children living in poverty in April 2024 was 100,000 higher than the previous year. But the total could rise to 4.8 million by the end of this parliament if the government does not scrap the two-child benefit cap, it said.
Alison Garnham, chief executive of the CPAG, said:
Today’s grim statistics are a stark warning that government’s own commitment to reduce child poverty will crash and burn unless it takes urgent action. The government’s child poverty strategy must invest in children’s life chances, starting by scrapping the two- child limit.
The government has a taskforce working on a strategy to reduce child poverty, and it is due to be published later in the spring.
While Rachel Reeves has been defending the spring statement, Keir Starmer has been in Paris for the “coalition of the willing” summit for leaders willing to contribute to the defence of Ukraine in the event of a peace settlement. Jakub Krupa is covering it on his Europe live blog.
Here are some of the best pictures.
Reeves says ‘trade wars are no good for anyone’ as US imposes 25% tariffs on car imports
One of the peculiarities of Rachel Reeves’ spring statement speech yesterday was that she was blaming global economic trends for the downturn in the public finances, but yet (in line with the standard government approach) she would not say anything critical about President Trump, who is the cause of all this turmoil.
In her interview with Sky News this morning, Reeves did not criticise the president directly, but she did say trade wars were bad for everyone.
Asked about the new US 25% tariffs on car imports, she said:
We’re not at the moment in a position where we want to do anything to escalate these trade wars.
Trade wars are no good for anyone. It will end up with higher prices for consumers pushing up inflation after we’ve worked so hard to get a grip of inflation, and at the same time, will make it harder for British companies to export.
Reeves also said talks were continuing with the US about securing “a better trading relationship”.
There will be two urgent questions in the Commons after 10.30pm. First, a work and pensions minister will respond to a question from the Lib Dem spokesperson Steve Darling about the impact of the Pip cuts on people getting the carer’s allowance. And then a business minister will respond to question from the Tory MP Martin Vickers about the future of Scunthorpe steelworks.
Poorer households to lose around £500 per year by end of decade, thinktank says – and why Reeves is saying the opposite
In her Today programme interview Rachel Reeves was asked about the Resolution Foundation’s spring statement analysis published this morning. (See 8.33am.)
This is what it says in its summary about how the government’s measures will cost poorer families around £500.
This is still early days for this government, but it could fairly be judged not just by this spring statement alone, but in the round – considering all the choices it has taken so far affecting family finances, including at the 2024 autumn budget. Taking everything together, the burden of adjustment looks less slanted – but poorer, disabled households are still set to take the biggest hit. More generally, a combined squeeze that reduces incomes by around 1.5% in the lower-middle reaches of the spectrum declines to only 0.5% at the very top.
Factoring those distributional decisions into the general outlook for growth and income makes for particularly grim reading. Across the poorer half of the country, the five years up to 2029 will see after-housing-costs incomes drop by around £500. In data going back to the early 1960s, larger drops for low-to-middle income families have only been seen twice before – in the sharp recession of the early 1990s, and then again in the immediate wake of the credit crunch. Disproportionate income reductions for sick and disabled people in poorer households are not going to help with any of these trends.
The Resolution Foundation uses its own disposable household income figures that are different from the real household disposable incomes (RHDI) used by the OBR. One difference is that it focuses on non-pensioner households. In its report it says:
Real income of the person one tenth of the way up the income distribution (‘p10’) or one fifth of the way up (‘p20’) is projected to be lower in 2029-30 than in 2023-24, by 5% and 1% respectively. In contrast, although even higher-income households may have lower incomes on this measure by 2029-30 than in 2024-25, they would nonetheless be better off than in 2023-24 given the strong growth in 2024-25.
Here is the chart illustrating this.
And here is the passage from the report explaining the headline £500 figure.
As ever, the outlook depends on many factors and is by no means set in stone, but any significant decline in incomes for the poorest in society would be historically notable. Figure 21 shows how real household incomes have grown for the poorest half of the non-pensioner population over every (rolling) five-year period since the 1960s. Over the next five years, the average equivalised income of the bottom half is projected to decline by 3%, or £500. And this scale of fall has only been (narrowly) worse during the early 1990s recession (1989 to 1994-95) and the financial crisis (2007-08 to 2012-13).
Here is figure 21.
Reeves yesterday told MPs almost the opposite. She said: “The OBR says today that households will be on average more than £500 a year better off under this Labour government.”
Why are the figures so different? Because the OBR and the Resolution Foundation are measuring disposable income in different ways. This is what the Resolution Foundation says about why its measure implies a more negative outcome.
In small part this is due to our focus on non-pensioners; but also because ‘non-labour income’ is growing disproportionately within the OBR’s RHDI projections (as the labour share is assumed to fall back), and this income may be either entirely excluded from our analysis (in the case of ‘imputed rents’); under-represented (e.g. rental income); or because it is important for average income but less so for low-to-middle income households (e.g. for many elements of investment income).
The OBR in part accepts this. This is what it says, for example, about the “imputed rent” part of its calculation.
Planning reforms boost incomes, offsetting some of the hit, as higher productivity raises wages and a larger housing stock means more compensation for housing services. Yet three quarters of the extra income from housing services comes as ‘imputed rent’ – what homeowners would receive if they rented out their home. This makes the boost less tangible for households.
