Rachel Reeves is pinning her hopes on planning reforms to avoid raising taxes again this year, The i Paper understands.
A Labour insider said that changes to the planning system were among a number of measures the Chancellor had “up No 11’s sleeve” to buy extra fiscal headroom for the autumn Budget.
On Thursday the Government was buoyed by figures showing the economy grew 0.7 per cent between January and March, making the UK almost certainly the fastest-growing G7 nation in the first three months of this year.
However, growth is expected to slow in the coming months as Donald Trump’s tariffs and April’s national insurance rise take their toll.
The Chancellor is facing pressure to raise taxes in autumn in order to meet her fiscal rules – that day-to-day spending is met by income and not borrowing, and that debt must be falling as a share of national income by 2029-30.
With a safety net of just £9.9bn, economists believe she may have no choice but to raise taxes if she does not want to change her ules.
A former Downing Street adviser, Nick Williams, has warned that “taxes will have to go up” for Reeves to provide sufficient money for public services while staying within the Government’s fiscal rules, which limit the scale of borrowing.
The assessment was backed by Robert Wood, chief UK economist of Pantheon Macroeconomics, who told The i Paper: “Reeves will almost certainly have to raise taxes in the Budget unless she cuts back spending plans given limited headroom and likely downgrades to growth forecasts.”
Labour’s manifesto ruled out increasing income tax, employee national insurance or VAT, so the Chancellor would first be likely to target duties, or freeze “any possible thresholds”, Wood said.
However, Labour MPs are worried about the political impact of increasing taxes given that the tax burden is already at a post-war high.
A Labour MP said that “colleagues would be very surprised if there were more tax rises”, with opposition to increases stretching “across the spectrum of the Parliamentary Labour Party”.
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A possible way out for Reeves is if she can convince the Government’s independent forecaster, the Office for Budget Responsibility, to formally score more of Labour’s policies as growth-boosting.
This would, on paper, increase the Chancellor’s headroom against her fiscal rules, potentially forestalling the need for tax rises or spending cuts.
A Labour insider said that the Treasury was working “on a few fiscal politics moves that are likely to help partially around OBR forecasting and headroom”.
They added: “The Planning and Infrastructure Bill will get scored [by the OBR] and that will add some fiscal headroom back in. There are a few things like this up No 11’s sleeve.”
Planning reform ‘to boost economy’
At the Spring Statement in March, the Treasury was able to convince the OBR that plans to make it easier to build houses would boost the economy by £6.8bn by 2030.
A Labour MP said that getting the OBR to score additional pro-growth measures could get the Government out of its fiscal bind this autumn. “We were saved from further welfare cuts [in March] because of the reforms to the planning system,” they said. “Pushing to go further on planning is one of the only ways out of further difficult decisions.”
A source close to Reeves said: “I don’t think anyone can doubt the Chancellor’s commitment to push on with planning reform given she has set the agenda on this issue and led the push which saw the OBR score it in the first place.”
The Prime Minister’s official spokesman hailed Thursday’s first-quarter growth figures as evidence that the Government’s “plan for change is working”.
Asked whether the economy would now deteriorate, the spokesman said: “I’m not going to provide forecasts. I’ll leave that to others.”
On the question of whether taxes would rise, he added: “We’ve obviously committed to the manifesto commitment not to increase taxes on working people.
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