A report from Morgan Stanley suggests that Rachel Reeves, the shadow chancellor, may be able to generate between £25 billion and £45 billion in tax revenue without violating Labour’s manifesto commitments. The report highlights that Reeves faces the challenge of covering a potential £30 billion shortfall in public finances expected to be addressed in next month’s budget.
According to Morgan Stanley’s chief UK economist, Bruna Skarica, there are approximately £25 billion in potential tax measures that could be implemented gradually and would not negatively impact inflation. However, economists warn that factors such as welfare policy changes, high borrowing costs, and a projected productivity downgrade from the Office for Budget Responsibility (OBR) could complicate Reeves’ ability to meet her fiscal targets.
The OBR is expected to release preliminary economic and public finance forecasts, which will guide the upcoming budget on November 26. Recently, Reeves emphasized the importance of maintaining fiscal responsibility in her speech at Labour’s conference, echoing Keir Starmer’s assertion that the party’s fiscal rules are non-negotiable.
Amid discussions on fiscal policy, Greater Manchester Mayor Andy Burnham suggested that Labour should reconsider its reliance on global bond markets, indicating potential political pressure to shift the government’s approach, especially in light of negative opinion polling for Labour.
Morgan Stanley has pointed out that while Reeves may be pushed to consider adjustments to tax pledges, doing so may appease bond markets and provide necessary revenue, estimating that introducing tax increases equivalent to 1% of GDP next year could be the most favorable approach for the gilt market.
Potential areas for tax increases identified by the investment bank include a further freeze of income tax thresholds and targeted taxes on gambling, banking, and an overhaul of pension taxation. Implementing these measures could yield significant revenue while aiming to sidestep inflationary consequences.
Source: https://www.theguardian.com/politics/2025/oct/02/rachel-reeves-could-raise-45bn-in-taxes-and-keep-promises-report-says