Chancellor on track to miss fiscal rules, says economic forecaster
The UK Government is on track to miss its key fiscal rules, increasing the likelihood of tax hikes later this year, an economic think tank has warned.
Economic growth is also on track to be weaker than previously expected this year, according to the National Institute of Economic and Social Research (Niesr).
Fresh forecasts from the organisation indicated that a slowdown in domestic demand and global economic uncertainty will impact potential growth throughout the year.
It predicted that the UK economy will grow by 1.2% in 2025 “amid low business confidence, high uncertainty and rising cost pressures”.
In its previous forecasts in February, Niesr had pointed to 1.5% growth for the year.
Tax receipts
The think tank indicated that the reduced level of growth will result in lower than previously predicted tax receipts.
As a result, it said the Government is now expected to miss its fiscal rules requiring UK national debt as a share of the economy to fall and to be on course for a budget surplus.
In the Government’s spring statement, Chancellor Rachel Reeves said state finances were on track to give a headroom worth around £9.9 billion by 2029/30.
Niesr’s forecasts suggest this could now be set for a shortfall of £62.9 billion over this time frame, suggesting the Treasury could need to look at more spending cuts or tax increases to achieve a surplus.
Tax rises
Stephen Millard, Niesr interim director, said: “The Chancellor’s self-imposed and arbitrary fiscal rules have led to a situation where twice a year the Chancellor has to either find further departmental savings or announce politically unpalatable tax rises.
“The uncertainty created by this leads to low investment and lower growth, the precise reverse of what the government wants to achieve. We have to rethink the fiscal framework.”
The organisation’s fiscal outlook also pointed towards rising inflation for the year, which it expects to average 3.3% in 2025.
Previously, Niesr had predicted it would average 2.4% for the year, with a peak of 3.2%.
It is the latest body to trim back the UK’s economic growth contexts amid pressure from changes to US tariff policies on the global economy.
Last month, the International Monetary Fund (IMF) cut its UK growth forecast by 0.5 percentage points to 1.1% for this year.
Adrian Pabst, deputy director for public policy at the organisation, said: “The Government’s ambition of boosting growth and living standards in every part of the United Kingdom requires a comprehensive, credible plan of economic transformation which is yet to emerge.
“While planning reform and infrastructure investments in London and the South East will add to GDP growth, we need higher public investment in second-tier cities and poorer regions to unlock greater business investment.”
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Alas, Andrew Bailey, Rachel Reeves, bankers in The City and their acolytes are well out of their depths and will continue to fail to meet their own objectives, let alone more realistic and real-world ones. What is completely wrong is their paradigm – the wholly unworthy but nevertheless currently sanctified neo-liberal capitalist economic model. It only works for those 10% who have lots of capital to play with, not the rest of us (90%) who are variously over-taxed, underpaid, underemployed, struggling or hungry. Richard Murphy’s recent article https://www.taxresearch.org.uk/Blog/2025/05/06/neoliberal-economics-is-a-work-of-fiction/ pins the tails on these donkeys. If you ever read only one… Read more »
The only fiscal rule these people have is to make themselves and their rich mates more money. If that’s at the expense of the rest of us they don’t care. Neoliberal economics has utterly failed the vast majority of people. It delivers more poverty, less services, less hope, less investment, and has destroyed our industrial base. It is built on a false set of assumptions, and cannot ever work. Its only popular because the wealthy fund a significant number of economists to be their cheerleaders. If we’d turned to their policies after WWII, we’d have no NHS, wouldn’t have built… Read more »
It has been patently obvious since the last budget that the Treasury will have to raise taxes or cut spending, probably before the end of this year. The UK is running an enormous deficit, and annual interest payments on the national debt have reached £100 billion. This is more than we spend on education. The current economic situation is arguably worse than when Cameron came to power, as we still face a 3–4% hit to GDP in the next 5 years from Brexit, alongside much higher interest rates and inflation The government can’t really increase borrowing. UK 10 year gilt… Read more »
End tax evasion by the rich and corporations then they wouldn’t need to hit the disabled and vulnerable. Or raise taxes for the rest of us.
As a comment from someone with experience in the area; tax evasion is so difficult and exspensive to clamp down on in the UK for several interconnected reasons e.g. the complexity of the tax system, the use of offshore structures, limited enforcement, and the blurred line between legal tax avoidance and illegal tax evasion.The expert accountants and lawyers always work for the avoiders, not HMRC. Even with clear evidence from leaks like the Panama Papers, tax evasion goes on due to legal loopholes, lack of transparency in overseas territories, and the sheer difficulty in legally proving wrongdoing beyond a reasonable doubt… Read more »
The problem seems to be they’re not willing to make the big decisions needed because it would affect the decision makers themselves. First, removing the NI discount enjoyed by those earning over £50k is a quick win that would hurt treasury mandarins and politicians far more than the average person. Second, we need to abolish the retirement age. If someone is still healthy at 66 they should still be helping to make a success of their Brexit. Third, state pension benefits when people eventually qualify should be means tested. We can’t afford to give free money to those that already… Read more »
I agree. I think they are too timid of making big and unpopular decisions. To be fair, the press and public mood is febrile at the moment. I would also like to add; from experience, I’ve rarely seen decision makers only thinking about themselves when deciding policies.
It’s only my opinion, but given current geopolitical trends, I would be recommend seeing massive investments in pubic infrastructure and spaces – across all regions, education, skills training and business support. Even if it means higher taxes.
I’m not sure how you would know that decision makers were only thinking about themselves. Take the top Treasury mandarins who all live in or within easy reach of London. They’re not going to voice an opinion that says “I live in London therefore I only support investment in London”. Instead they’ll concoct superficially convincing narrow arguments to ensure their desired outcome is achieved, like making a green book rule to ensure the primary requirement of infrastructure investment is a quick return on that investment (great news for taxpayers!) which almost always happens in areas of high GDP (London and… Read more »
Just another voice for the status quo there, Peter J… Raising taxes or cutting spending are NOT the only option a sovereign government with a fiat currency has. Though you wouldn’t know that from following the right-wing media, including the BBC. All in blissful or mendacious ignorance! Try my comment above… We don’t have a tax and spend economy – we have a spend then tax economy. The people have had enough of promises made by the Truss-lites and failing Labour governments that go unfulfilled. As Lord Custard correctly says above, neo-liberal economics cannot ever work. People want real change,… Read more »