£50bn Black Hole Raises Prospect of Tax Rises

Chancellor Rachel Reeves is under pressure as the UK’s fiscal gap is now estimated at more than £50bn. The National Institute of Economic and Social Research (NIESR) warns that she faces a “trilemma”: cut spending, raise taxes, or borrow more. Their forecast shows a £41.2bn deficit by 2029–30, meaning substantial adjustments will be needed in the Autumn Budget to meet fiscal rules.

The report also highlights the strain on households. The poorest 10% are expected to see living standards fall further in 2024–25, still around 10% lower than pre-Covid levels, while middle- and higher-income households may see only modest growth.

Which Taxes Could Rise?
Labour has pledged not to raise taxes on “working people,” but the definition remains vague. Income tax, National Insurance, and VAT are unlikely to rise, limiting options.

Instead, Reeves may extend the freeze on income tax thresholds, known as “fiscal drag,” pulling more people into higher tax bands over time. Adjustments to capital gains tax, inheritance tax, and other smaller levies are also possible.

What Can You Do?
For now, nothing is confirmed. It’s best not to make drastic changes based on speculation. Staying focused on your long-term financial plan remains the most sensible approach.

Some changes, however, are already set. From 2027, pensions will be included in inheritance tax calculations—making forward planning even more important.

Speaking with a financial planner can help you prepare, understand the potential impact, and protect your long-term goals with confidence.