London: British finance minister Rachel Reeves is facing a projected £4.4 billion ($5.7 billion) shortfall in her fiscal plans, according to a report by the Resolution Foundation released on Monday. The think tank warns that to align with her budget rules, Reeves may need to introduce stringent measures in her upcoming fiscal statement.
The report suggests that the economic outlook has deteriorated significantly since the last budget in autumn, forcing tough decisions on taxation and spending. The Resolution Foundation advised against severe cuts to welfare spending—widely expected in Reeves’ budget update on March 26—and instead urged consideration of tax increases.
“The UK’s economic outlook has declined markedly since the budget last autumn,” said James Smith, research director at the Resolution Foundation. “Weaker growth and higher interest rate expectations look set to turn the UK’s projected current surplus of 10 billion pounds into a deficit of around 5 billion pounds.”
The Office for Budget Responsibility (OBR), Britain’s fiscal watchdog, is anticipated to revise its economic growth forecast for 2025 downward from 2.0%. The Bank of England has already cut its projection to 0.75%, and the Resolution Foundation expects a similar revision.
In addition to slowing growth, the public finances have been impacted by rising borrowing costs in global financial markets, largely influenced by U.S. economic policies under President Donald Trump.
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Reeves has pledged to adhere to her fiscal rules, which include balancing day-to-day public spending with tax revenues by 2030. However, the Resolution Foundation warned that lower-income households should not bear the burden of budget adjustments.
“With Britain’s fiscal pressures more likely to intensify rather than fade away, continuing to rule out tax rises is going to make future budgets even more challenging to deliver,” Smith stated.
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Reeves and Prime Minister Keir Starmer had assured voters during last year’s election campaign that they would not increase income tax rates, value-added tax (VAT), or the corporate profits tax.
One potential approach to raising additional revenue would be extending the freeze on income tax thresholds by two more years, until 2030, a move that could generate billions of pounds.
