Chancellor Rachel Reeves acknowledged on Wednesday that high taxes are weighing on economic growth as she pressed ministers to rein in departmental spending to help close what officials fear could become a £50 billion hole in the public finances ahead of the Nov. 26 Budget.
Speaking to a conference of private equity and venture capital investors, Reeves said tax policy ‘‘does impact economic growth’’ and that curbing spending was necessary to make the government’s numbers add up. She stressed that expanding the economy must be the government’s central mission to ease choices over tax and public spending.
Reeves told colleagues in a letter, seen by the BBC, that departments would not be bailed out by the Treasury if they failed to control costs and that a £9 billion Treasury Reserve would be available only for ‘‘genuinely unforeseen, unaffordable and unavoidable pressures.’’ The letter set out that reserve funds would be considered only for departments that had already maximised savings, rather than to meet routine pressures such as higher public sector pay.
The Chancellor said in her speech that poor past growth, low investment and deteriorating productivity had driven taxes to higher levels, and that reversing those trends was essential. According to a No. 10 readout, Reeves briefed Prime Minister Keir Starmer’s reshuffled top team that the government would prioritise ‘‘reducing inflation, controlling spending and kickstarting growth.’’
Business groups have expressed alarm that firms could again face higher taxes as ministers seek to plug the potential fiscal shortfall. The Confederation of British Industry chief Rain Newton-Smith, writing in The Guardian, urged the government to pursue structural tax reforms rather than rely solely on higher rates, warning that recent employment rights legislation under consideration is already adding cost and complexity and in some cases has led firms to delay hiring.
Markets have already signalled doubts that the government will put public finances on a sustainable footing, pushing up the interest rates on government borrowing in recent weeks. That movement has increased the cost of servicing the national debt and compounded the fiscal challenge, officials said.
Within the Labour Party, some MPs have called for new levies on wealth to fund public services. Reeves cautioned against adopting an untested wealth tax without clarity about the revenues it would generate, saying some countries combine different approaches to taxing assets and inheritance. When asked whether she would protect working people by taxing the wealthy rather than imposing ‘‘regressive’’ spending cuts, Reeves said she would not trade existing inheritance tax rules for an ‘‘unproven tax’’ without knowing its yield.
Deputy leadership hopeful Emily Thornberry included a wealth tax among key issues she listed when declaring her candidacy. Some senior figures have floated proposals such as a 2 percent levy on assets above £10 million, with backers arguing it could raise billions for the Treasury, though Reeves and Treasury officials have stressed uncertainty over such estimates.
Reeves has told ministers that the autumn and beyond must focus on growing the economy ‘‘in a way that makes working people better off and provides the revenues we need to fund our public services,’’ according to Downing Street. Her office said the government would combine fiscal discipline with targeted public investment to support consumer confidence and private-sector investment.
The Chancellor’s interventions come as the government balances competing pressures from slowing economic growth, rising debt interest costs and demands for additional spending across public services. With less than three months until the Budget, ministers face mounting pressure to demonstrate how they will close the fiscal gap while maintaining the government’s growth and social policy priorities.