Reeves could be forced to hike taxes, warns think tank

Rachel Reeves may be forced to raise taxes to plug holes in Britain's public finances, a leading think tank has warned, after the government failed to rule out watering down plans to slash the benefits bill.

- MILLIE COOKE

The warning comes ahead of the chancellor’s spring statement on 26 March, when she is expected to announce a raft of public spending cutbacks to make up for a tighter fiscal environment and to balance the books.

Initial reports had suggested that personal independence payments (PIP) would be frozen from rising in line with inflation for a year, but the plan has been met with strong opposition and is now expected to be dropped.

After warnings from charities that the plans to reform the welfare system could force thousands of disabled people into poverty and result in a rebellion from Labour MPs behind the scenes, the government now appears poised to row back on some of the proposals which were aimed at raising between £5bn and £6bn in total.

The Resolution Foundation think tank, which described plans to slash welfare as “regressive” and “rushed”, said the government should instead raise taxes to meet its fiscal rules and make up for tightening fiscal headroom – something it argues is the only realistic alternative to the proposed welfare cuts.

James Smith, research director at the Resolution Foundation, told The Independent that the “struggling state of public services” will make it difficult to find the large-scale savings that are required in order to meet their fiscal rules. The think tank estimates that extending the threshold freeze on income tax and national insurance would raise £8bn during the final two years of the five-year forecast.