Chancellor 'must raise taxes to help plug £40bn-plus gap'

THE Chancellor must resort to “moderate but sustained” tax rises to help repair Britain's battered public finances as she faces missing one of her fiscal rules by more than £40bn, an economic think tank has warned.

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The National Institute of Economic and Social Research (Niesr) said weaker-than-expected recent economic activity, U-turns on welfare cuts and forecast-beating borrowing have combined to create a “worsening fiscal outlook”.

Rachel Reeves is now set for a £41.2bn shortfall on her “stability rule” in 2029-30 and has been left with an “impossible trilemma” of trying to meet her fiscal rules while fulfilling spending commitments and upholding a manifesto pledge to not raise taxes, it said.

She will need to raise taxes or cut spending in the autumn Budget to plug the gap, Niesr cautioned.