Chancellor on track to breach Labour's fiscal rules by £63bn

08 May 2025, 13:31 by Alice Brooker · LBC

In the Spring Statement, Chancellor Rachel Reeves said state finances were on track for a budget surplus by 2029/30.Picture: Getty

By Alice Brooker

@alice_brooker

The government is reportedly on target to breach its own fiscal rules, increasing the likelihood of tax hikes later this year.

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Chancellor Rachel Reeves is on track to miss key fiscal rules, according to an economic think tank.

The prediction, from National Institute of Economic and Social Research (Niesr), comes alongside warnings that economic growth is on track to be weaker than previously expected this year, with the likelihood of tax hikes increased.

This is due to a slowdown in domestic demand and global economic uncertainty.

It predicted that the UK economy will grow by 1.2% in 2025 “amid low business confidence, high uncertainty and rising cost pressures”.

An economic think tank has also warned that the likelihood of tax hikes has increased.Picture: Getty

Previous forecasts by Niesr in February predicted a 1.5% growth for the year. As a result, the think tank 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 Spring Statement in March, Reeves said state finances were on track to restore a £9.9 billion budget surplus by 2029/30.

The news comes as UK interest rates have been reduced for the second time this year, from 4.5% to 4.25%, by the Bank of England, in order to help boost growth in the economy.

It predicted that the UK economy will grow by 1.2% in 2025.Picture: Getty

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.

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.”