Rachel Reeves told buisness leaders there will be new new tax rises (Image: Getty)
A financial expert has warned that Rachel Reeves will need a healthy dose of luck to keep her promise not to raise taxes any further than she has already done.
The Chancellor has faced weeks of criticism following her inaugural budget, which included ￡40 billion of tax rises.
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However, she has now vowed that these tax hikes will be the last of this parliament.
She also warned that public spending is now effectively set, and government departments must work within these budgets.
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Rachel Reeves has been under fiore since her inaugral budget (Image: Getty)
Reeves told business leaders: “We’ve now set the budget for public services for the duration of this parliament. Public services now need to live within their means because I’m really clear - I’m not coming back with more borrowing or more taxes.”
However, economists are sceptical Reeves will be able to keep her promises. They point out that, according to her Budget, public spending is set to increase by 4.8 per cent this year and 3.1 per cent next year - before declining sharply to an average annual rise of just 1.3 per cent over the subsequent three years.
They say that the 1.3 per cent increases projected for the latter half of the decade would essentially mark a return to austerity - and almost inevitably result in real-terms cuts.
The Institute for Fiscal Studies (IFS) says Reeves must find another ￡9 billion - either from unexpectedly higher growth or from further tax increases she has now ruled out.
Labour may have to bring in austerity policies (Image: Getty)
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If she doesn't, the Labour Government will have little choice but to introduce 'austerity' measures - like the ones they once protested against when in opposition.
Ben Zaranko, associate director of the IFS, said the Chencellor's cabinet colleagues will "be lobbying hard" for budget top-ups, but she will have little wriggle room to avoid more huge tax rises. He said this could mean "traditionally unlucky areas" like the justice system, local government, and further education face cuts.
Reeves, however, has suggested further cuts can be avoided. She told business leaders that big efficiency savings, which would be introduced in a spending review in the Spring, would ensure taxpayers got better value for money from the Government.
However, economists say Reeves is also betting heavily on economic growth - and this means she will need a healthy dose of good luck.
Zaranko told The Times: "It’s possible that the chancellor will find a way to square the circle. She might get lucky on growth.
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"The disability benefits bill might stop growing quite so quickly, or pressures on areas like the asylum system might fade away, freeing up cash to be spent elsewhere. Pressures for more NHS spending could ease as productivity and performance improves, and public service reform could start to yield fruit.
“Any or all of those things would be a big help. But if the chancellor isn’t blessed with good fortune, there’s every likelihood that her spending plans don’t survive contact with the spending review process and that a more generous settlement requires another round of tax rises.
"That’s especially true if global developments weigh on growth or necessitate rapid increases in the UK defence budget.”