Chancellor Rachel Reeves (Image: Getty)
Rachel Reeves could be forced to break Labour's pledge not to raise taxes for working people, economists have warned. Donald Trump's tariffs on US imports are set to hit Britain’s economic growth, according to EY Item Club. The economic forecaster slashed its prediction for UK growth next year from 1.6% to 0.9%. It warned that the downgrade threatens to reduce or even wipe out the ￡9.9billion of fiscal headroom the Chancellor has left herself.
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The group said it means Ms Reeves may be forced to renege on Labour's manifesto promise not to increase income tax, national insurance or VAT or rethink her fiscal rules in a bid to balance the books.
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The report said: “Given the world has changed a lot since last summer’s general election, if faced with the need to raise more revenues, the Government may raise some of the tax rates it had pledged to leave untouched or consider changing its fiscal rules once again.”
Ms Reeves cut disability benefits and slashed Whitehall budgets in order to maintain her ￡9.9 billion headroom at the spring statement.
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Meanwhile, she faced a backlash for hiking national insurance contributions for employers in her autumn budget last October.
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It comes as the Government is scrambling to strike a trade deal with the US to lessen the impact of the tariffs, which were unveiled by Mr Trump
A government spokesman said: “We know that global economic challenges are creating an unsettling time for businesses, which is why we will go further and faster to drive growth through our plan for change.”
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