Chancellor Rachel Reeves’ spending review next week comes at a time when growth is weak and borrowing high. Despite promises of billions in new spending on arms, defence, and healthcare, more investment will have to come from higher taxes. The brutal reality is that governments must balance short-term needs with long-term fiscal responsibility.
Reeves has self-imposed limits on capital spending, as reflected in her rule that national debt should be falling as a share of national income. This means constraints on investing in military hardware and other areas, and more funds are being redirected to transport infrastructure for less well-off parts of the country.
The second fiscal rule, which dictates day-to-day spending must be covered by tax receipts, makes life difficult for Reeves. The Office for Budget Responsibility (OBR) provides outside scrutiny, and if it warns of breaking this rule, she may have to raise taxes or reconsider her stance.
While some argue that the OBR is infallible, cutting spending or raising taxes on basis of changing economic views is not sensible policymaking. A change in frequency of assessments recently recommended by the International Monetary Fund could be a step towards more flexible decision-making.
The UK currently has a system where public spending is determined by what the Treasury and OBR say is affordable, rather than need-based. With pressing needs like prison overcrowding, road maintenance, and police funding, it’s clear that a rethink of borrowing rules is necessary to fund these priorities without compromising fiscal responsibility.
Source: https://www.theguardian.com/commentisfree/2025/jun/04/rachel-reeves-cant-avoid-raising-taxes-needs-creative-approach-spending-review