Chancellor Rachel Reeves will face intense scrutiny on Wednesday as she delivers a spending review that will outline departmental spending totals for 2028/29 and 2029/30. While the review is not expected to announce major changes in fiscal policy, the pressure on public finances will be significant.
The Government has been under pressure from various quarters, including its own backbenchers, Reform UK’s Left-wing economic policies, and a recent Nato meeting that called for increased defence spending. These factors have contributed to concerns about the Chancellor’s ability to fund her spending promises without relying on tax rises.
In order to balance the books, the Chancellor may need to increase defence spending to 3pc of GDP or even higher, which would require corresponding cuts in other departments. However, such a move would be highly contentious, particularly with the Labour Party and Reform UK’s Left-wing economic policies at play.
The Government has already announced pay rises for public sector workers in England, which will cost up to £3bn. The Chancellor may also need to reverse winter fuel payments cuts or remove the two-child cap on benefits, both of which would be costly. Additionally, a softening of welfare cuts could add another £500m to the bill.
Market interest rate expectations and gilt yields have risen since March, adding an extra layer of pressure on the Chancellor. If sustained, these rises could raise the Government’s debt servicing costs by up to £4bn by 2029/30.
The Chancellor will likely need to tread carefully to avoid a fiscal “hole” that would be difficult to blame on the previous Conservative government. While tweaking fiscal rules might provide some wiggle room, it is unlikely to yield more than £20bn in additional revenue.
With huge tax rises becoming increasingly likely, including an extension of personal tax thresholds by two years, the Chancellor’s options are narrowing. The Government must navigate this challenging landscape carefully to avoid sparking further controversy and maintain public trust.
Source: https://www.telegraph.co.uk/business/2025/06/09/rachel-reeves-has-made-tax-rises-inevitable