Chancellor Faces Mounting Pressure Amid “Impossible Trilemma” Over Tax Rises

Published: 06 July ‘2025. The English Chronicle Desk

Rachel Reeves, the UK’s first female chancellor, is facing mounting pressure to impose significant tax increases in the upcoming autumn budget, as a leading economic think tank warns of a looming £41.2 billion fiscal shortfall by 2029–30. The National Institute of Economic and Social Research (NIESR), in its latest UK economic outlook, has cautioned that the government is on track to breach its own fiscal rules unless decisive action is taken.

According to NIESR, the government’s primary fiscal mandate — that everyday public spending must be fully covered by tax revenues — will be missed unless urgent corrective measures are introduced. The dire warning adds to the growing concerns over the sustainability of current spending levels amid sluggish economic growth, higher-than-expected government borrowing, and a reversal of planned welfare cuts that would have delivered £6.25 billion in savings.

The institute described the chancellor’s predicament as an “impossible trilemma”: an unresolvable conflict between maintaining fiscal discipline, honouring expensive public service commitments, and sticking to Labour’s manifesto promises — particularly its repeated pledge not to raise taxes on “working people.” Both Reeves and Prime Minister Keir Starmer have firmly ruled out increases to income tax, national insurance, or VAT, sparking speculation about alternative revenue-generating measures, including the potential introduction of a wealth tax.

The fiscal gap presents a formidable challenge for Reeves, who must now choose between breaking manifesto pledges, scaling back spending commitments, or veering off the fiscal path Labour promised during the general election. Analysts warn that failing to act could shake investor confidence and raise borrowing costs.

Conservative shadow chancellor Sir Mel Stride wasted no time in criticising the government, attributing the financial predicament to what he called “Labour’s economic mismanagement.” He argued that the newly elected Labour government was already steering the economy into uncertainty, and claimed their policy contradictions were becoming increasingly evident just weeks into their term.

As the autumn budget draws nearer, political and economic pressures are likely to intensify. Observers expect the chancellor to begin laying the groundwork for potential tax reforms in coming months, even as she attempts to reassure the public that the burden will not fall on ordinary working families.

The outcome of this fiscal balancing act will have significant consequences not only for Labour’s credibility but also for the long-term health of the UK economy. Whether Reeves can successfully navigate the treacherous path ahead remains one of the most pressing political questions of the new administration.