Chancellor Rachel Reeves has signaled a stark reality for the United Kingdom’s public finances, confirming that both tax increases and spending cuts are firmly on the table as she prepares her second budget statement, scheduled for November 26, 2025. In a series of candid interviews and public statements, Reeves has acknowledged the scale of the fiscal challenge her government faces—a challenge shaped by a combination of sluggish productivity, global instability, and the lingering aftershocks of Brexit and past austerity measures.
According to Sky News, Reeves was recently briefed on the first draft of the Office for Budget Responsibility’s (OBR) report, which revealed a fiscal black hole that could be as large as £30 billion. This gap, she explained, is the result of a U-turn on winter fuel and welfare reforms and a significant productivity downgrade by the OBR, meaning the UK is expected to earn less in the future than previously forecast. Reeves told Sky News, “Of course, we’re looking at tax and spending as well.”
Her comments mark a notable shift from earlier interviews, where she had carefully avoided discussing the prospect of tax rises. Now, with the numbers laid bare and the economic pressures mounting, Reeves has been more forthright. “Nobody wants that cycle to end more than I do,” she said, when pressed about whether the UK was trapped in a ‘doom loop’ of annual tax hikes to fill recurring fiscal gaps. She emphasized her focus on economic growth, only hesitating to use the phrase ‘doom loop’ outright by pointing to the UK’s relative economic strength in the G7 during the first half of the year.
The International Monetary Fund (IMF) has recently upgraded its projections for UK growth in 2025 by 0.1 percentage points, putting GDP expansion at 1.3%—the second-fastest in the G7, behind only the United States. However, the IMF also trimmed its outlook for 2026 and warned that the UK is set to experience the highest inflation among G7 nations for both this year and next, driven largely by rising energy and utility bills. The UK’s growth prospects are now 0.4 percentage points below what the IMF predicted last autumn.
Speaking to broadcasters in Washington, D.C., ahead of the annual IMF and World Bank conference, Reeves reiterated her priorities. “I’ve always been very clear that we will continue to prioritise economic and fiscal stability in the UK,” she stated, according to the BBC. She added, “As we get the forecast, and as we develop our plans, of course we are looking at further measures on tax and spending, to make sure that the public finances always add up.”
Reeves faces a particularly difficult balancing act. At her first budget in November 2024, she announced tax rises worth £40 billion a year, including hikes to payroll taxes paid by employers, and insisted at the time that such moves would not need to be repeated. Yet, with borrowing costs rising and productivity forecasts worsening, she now faces the prospect of another round of tough decisions. Analysts estimate she will need to raise taxes or cut spending by around £20 billion to meet her “non-negotiable” fiscal rules, which require government debt to fall as a share of national income by 2029-30 and demand that day-to-day government spending is covered by tax revenues, not borrowing.
The chancellor’s options are constrained by Labour’s 2024 election promises. The party pledged not to raise the main revenue-generating taxes: income tax rates, VAT, sales tax, and corporation tax. National Insurance was also not to be raised—though a rise in employer contributions last autumn sparked controversy. Reeves, however, has not ruled out freezing income tax thresholds beyond 2028, a move that would quietly bring more earners into higher tax bands as wages rise. There is also speculation, reported by the BBC and Sky News, that she may target property taxes, making more landlords pay National Insurance on rental income, and could increase taxes on betting companies. As she said recently, “there is a case for gambling firms paying more.”
Political realities further complicate the landscape. Many Labour MPs argue that additional spending cuts would be politically untenable, especially after the backlash to recent welfare reform attempts, which have now been paused pending a ministerial review. Departmental budgets for day-to-day spending were only recently set for the next three years in June’s spending review, but the government could still promise deeper cuts in four or five years’ time.
Meanwhile, the opposition Conservatives have drawn a sharp dividing line, pledging at their conference to slash public spending by £47 billion a year if they win the next election, targeting welfare, the civil service, and foreign aid. Shadow Chancellor Sir Mel Stride has seized on the government’s predicament, stating, “Be in no doubt, this tax doom loop is down to the Chancellor’s economic mismanagement. Under Rachel Reeves we have seen inflation double, debt balloon, borrowing costs at a 27-year high, and taxes up—with more pain on the way in the autumn.”
Reeves has not shied away from attributing the current economic difficulties to a trio of factors: austerity policies, the fallout from former Prime Minister Liz Truss’s mini-budget, and, most notably, Brexit. In her interview with Sky News, she described Brexit’s economic impact as “severe and long-lasting,” noting that the UK economy was already expected to be 4% smaller because of Brexit. “Austerity, Brexit, and the ongoing impact of Liz Truss’s mini-budget, all of those things have weighed heavily on the UK economy,” she said. However, she pointed to recent deals with the EU on food and farming, the movement of goods, energy trading, and youth mobility as steps that are “undoing some of that damage.”
Despite the difficult choices ahead, Reeves has maintained that she will not relax the government’s fiscal rules. “I won’t duck those challenges,” she said. “The numbers will always add up with me as chancellor because we saw just three years ago what happens when a government, where the Conservatives, lost control of the public finances: inflation and interest rates went through the roof.”
As the November budget approaches, all eyes will be on Reeves and the Treasury. The chancellor’s next moves will not only determine the immediate future of the UK’s public finances but will also test the government’s ability to balance economic growth, political promises, and the harsh arithmetic of fiscal reality. With a fragile recovery, persistent inflation, and deep political divides, the stakes could hardly be higher.
