In its election manifesto Labour promised not to increase taxes on “working people”, covering National Insurance, Income Tax and VAT.
However, in October’s Budget the government increased National Insurance contributions for employers, saying the hike was needed to plug a “black hole” in the nations finances and invest in the NHS and other public services.
Paul Dale, chief UK economist at Capital Economics, said: “Non-defence spending can only be cut so far. And the UK’s uncomfortable concoction of low economic growth and high interest rates means public borrowing can only rise so far.
“The inevitable conclusion is that at some point the government may have to break its election promises and raise taxes for households – the full Budget later this year will be the next flashpoint.”
Paul Johnson, director of the Institute for Fiscal Studies think tank, said the fact that Reeves had little room for manoeuvre “leaves you at the mercy of events”.
“We can surely now expect six or seven months of speculation about what taxes might or might not be increased in the autumn,” he said.
Asked on Wednesday if there could be more tax rises in October, Reeves said: “We’ll never have to do a Budget like that again.”
Pressed on BBC Radio 4’s Today programme over whether if things went wrong there may need to be more tax rises or spending cuts, the chancellor acknowledged “there’s always risks” but said there were also “opportunities” for economic growth from housebuilding and reforms to the planning system.
