Experts suggested to The i Paper she has at least four: take a tough stance on public sector pay, make cuts to unprotected Government departments such as the Home Office, change her debt rules or raise taxes.
Taking a firmer line on public sector pay negotiations is one of a suite of options available to the Government as it seeks to find new ways to balance the books, according to a former minister.
This squeeze has followed a sell-off of UK Government debt, fuelling a rise in long-term borrowing costs to the highest level since 1998.
2. Spending cuts
Why rising borrowing costs are good news for pension annuities
Read MoreThe Chancellor is reported to be assessing deeper spending cuts than originally planned as her department works on a spending review.
Likewise, rising geopolitical tensions and Labour’s commitment to increase spending to 2.5 per cent of GDP means that the defence budget will not be raided.
Webb feels the most likely course she will take is “an across the board squeeze”.
Webb added that decisions around disability benefits could be considered too – which are already being reviewed in a Green paper. These could end up at the “tougher end of the scale”, he added.
These rules, that the Government has committed to, include getting debt falling as a share of national income by the end of this parliament.
The reason UK bond yields have gone up is because the same is happening for US bonds in anticipation of Donald Trump reentering the White House.
“This leaves the Chancellor in a difficult position,” said Professor Stephen Millard, deputy director of the National Institute of Social and Economic Research, who used to work at the Bank of England. “She could raise taxes, although she has ruled this out, change or fudge the fiscal rules or cut spending.”
4. Hiking taxes
This includes further increasing the rates of capital gains tax, alcohol and tobacco duties, air passenger duties or vehicle excise duty.
He said: “For instance, the Government could reduce the amount of tax relief on pension contributions for high earners, or scrap the lifetime ISA. The Government could also increase the size of the tax base of existing taxes.”
Since 1 January, the Government has imposed VAT on private school fees at the standard rate of 20 per cent, which is a widening of the VAT tax base. The Government could go further by introducing VAT on other products and services that are exempt.
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