The Government could have to announce “painful” fiscal measures in upcoming Budgets to balance the books after revealing fresh spending plans, economists have warned.
Experts have said tax increases are “almost inevitable” later this year in order for the Chancellor Rachel Reeves to meet her fiscal rules.
On Wednesday, the Chancellor set out how she plans to spend hundreds of billions of pounds of taxpayers’ money, committing to growing departmental budgets and pumping more cash into the NHS.
She said previous tax increases – which included rises in company national insurance contributions in April – and looser borrowing rules have allowed higher spending on public services and increased investment.
A Spending Review that invests in Britain's renewal.
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✅ A record cash investment in our NHS
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However, Ms Reeves also stressed the Labour Government is committed to her recently-revised set of fiscal rules.
She is seeking to meet her fiscal rule of balancing day-to-day spending with revenues by 2029-30 while improving public services and targeting accelerated economic growth.
Some economists, however, suggested on Wednesday that spending plans and pressure on the economy from international trade tensions could mean that taxes could need to be increased further to meet this.
Stephen Millard, interim director of the NIESR economic research institute, said: “The Chancellor has yet again said that her fiscal rules are non-negotiable.
“But, given the small amount of headroom at the time of the spring statement and the increases in spending announced since then, it is now almost inevitable that if she is to keep to her fiscal rules, she will have to raise taxes in the autumn budget.”
Raj Badiani, economics director at S&P Global Market Intelligence, said: “The Government will face a persistent challenge of providing substantial funding increases to health, housing, defence and infrastructure development while also ensuring adequate financing to non-protected services – all against the backdrop of meeting its non-negotiable fiscal rules.
“The goal of balancing books is likely to require a series of painful fiscal announcements, with the spending review following on from a difficult spring statement and 2024’s autumn budget.
“This year’s autumn budget could be another tough fiscal event, should the UK economy falter amid heightened domestic and external tensions.”
The Chancellor is also under pressure to meet her pledge to deliver planned deficit reductions to reduce the UK’s debt position.
"It is now almost inevitable that if [the Chancellor] is to keep to her fiscal rules, she will have to raise taxes in the Autumn Budget"
— National Institute of Economic and Social Research (@NIESRorg) June 11, 2025
Our Interim Director @EconSteveM as the #SpendingReview begins 👇
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It came after Ms Reeves increased spending on the NHS, education and teacher pay, police forces, border security and defence.
Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, suggested “stealth taxes” could be used later this year to help support these funding plans but said larger hikes could be needed depending on economic forecasts.
“We think that taxes will need to rise in the coming years to meet day-to-day spending pressures on public services and generational challenges like the need for increased defence spending.
“Looking ahead to the October Budget, the Chancellor can likely cover small extra spending commitments — like reversing cuts to winter fuel payments — with hikes to duties and other ‘stealth’ taxes that raise prices.
“But the Government would need to break manifesto promises to hold the big tax rates steady, or change its fiscal rules, if the OBR (Office for Budget Responsibility) downgrades its view of productivity growth in the October budget.”
