Chancellor Rachel Reeves said high tax levels have weighed on the UK economy and urged ministers to rein in departmental spending to help plug what officials fear could be a large hole in the public finances ahead of the autumn Budget.
Speaking to private equity and venture capital executives, Reeves acknowledged that "tax policy does impact economic growth" and said growth must be the government's top priority in order to make decisions on tax and spending easier. She has warned colleagues that the Treasury will not provide an automatic bailout for departments that fail to control costs.
Reeves's remarks came as ministers were briefed on the scale of pressures facing the public finances. Officials and some ministers have discussed a range of scenarios, with one widely reported estimate suggesting a potential gap of as much as £50 billion that the government may need to cover at the Budget scheduled for Nov. 26. That projection reflects slower-than-expected growth, rising interest costs on government debt and demands for additional spending.
In a letter seen by the BBC, Reeves set out strict criteria for use of the £9 billion Treasury Reserve, saying it should be used only for "genuinely unforeseen, unaffordable and unavoidable pressures" and not for costs such as higher public-sector pay. Departments would only be considered for reserve funds after they had exhausted other savings, the letter said.
Business groups reacted with concern to the prospect of further tax rises. The Confederation of British Industry chief executive, Rain Newton-Smith, urged the government to pursue structural tax reform rather than further increases in rates. Writing for a national newspaper, she warned that current employment rights legislation under consideration in Parliament was adding to business costs and complexity and risked slowing hiring plans.
"The chancellor cannot raid corporate coffers again so she must look elsewhere, embracing long-term strategic tax reforms rather than maintaining a slavish adherence to manifesto promises on tax," Newton-Smith wrote. She argued that the structure of the tax system — including business rates, VAT thresholds and stamp duty — is holding back investment and labour mobility.
Within Labour, debate has intensified over how to raise revenue to fund public services and new spending priorities. Some Labour MPs have advocated introducing "wealth taxes" to help meet fiscal pressures and fund commitments, while others have urged restraint. Reeves warned that replacing existing levies such as inheritance tax with an "unproven" wealth tax without clear evidence of the revenue it would raise would be a mistake.
Asked whether she would protect working people by taxing the wealthy and avoid regressive cuts, Reeves said some countries operate wealth taxes but outcomes and revenues vary. According to the notes of her remarks, she cited Switzerland as an example that does not levy inheritance tax.
Labour figures remain publicly divided. Emily Thornberry, a deputy leadership hopeful, listed a wealth tax among her priorities after launching a leadership bid. Some senior party figures have floated a possible levy of about 2 percent on assets above £10 million as one option, saying it could raise substantial sums for the Treasury; the chancellor has urged caution about relying on such measures before their yields are proven.
Markets have signalled scepticism about the government's fiscal plans by pushing up the cost of government borrowing in recent weeks, with commentators saying higher gilt yields reflect investor doubts over whether decisive action on spending and growth will be taken. Reeves has sought to reassure colleagues and markets, telling ministers the government's focus will be "reducing inflation, controlling spending and kickstarting growth," according to a No. 10 readout of recent briefings.
The chancellor has emphasised the need to boost investment and productivity if tax and spending choices are to become easier. "One of the reasons why taxes have risen to such a high level is because we've had such poor growth and such low levels of investment and such a deterioration in our productivity performance," she said in the speech, adding that she was "determined to drive those things up."
With the Budget less than three months away, ministers face competing pressures: to protect manifesto commitments and public services, to limit tax increases, and to present plans that restore investor confidence. Reeves has put Cabinet on notice that controlling departmental costs will be central to meeting those competing demands, and the debate over taxes, reserves and reform is likely to intensify as the government finalises its fiscal package for Nov. 26.