A new analysis from the National Institute of Economic and Social Research (NIESR) has put fresh pressure on Chancellor Rachel Reeves ahead of the upcoming autumn Budget. NIESR is one of the UK’s oldest and most respected independent economic think tanks, established in 1938. Known for its impartial and evidence-based work, it frequently advises government departments, central banks, and businesses on fiscal and economic matters.
In its latest findings, NIESR warns that Reeves is facing a £41.2 billion shortfall in day-to-day government finances, with an additional £9.9 billion required to restore fiscal buffers. That puts the total gap at over £51 billion—a serious fiscal challenge with no easy solution.
Economists at the institute describe this as an “impossible trilemma”. Reeves must either raise taxes, cut public spending, or relax the strict fiscal rules Labour has pledged to uphold. Each path carries significant political and economic risks.
What NIESR Recommends
NIESR is calling for moderate but sustained tax rises to avoid fiscal instability. A suggested 5p increase in income tax across all bands could plug a large part of the gap, but the think tank notes this would be politically difficult. Other options might include freezing thresholds, adjusting VAT or National Insurance, or introducing new levies.
The key warning from NIESR is to avoid piecemeal tax changes, which create uncertainty without solving the underlying problem. Instead, they advocate for coherent, long-term tax planning to rebuild fiscal resilience and public confidence.
Criticisms and Political Fallout
Retailers, represented by the British Retail Consortium, have voiced concern that further tax rises would push up prices, worsening inflation. With food inflation predicted to reach 6%, businesses argue that higher taxes would squeeze consumers and threaten jobs.
Inside the Labour Party, debate continues. Some want Reeves to consider wealth taxes—on luxury assets, pensions, or investment income—but she has publicly ruled these out. Her preference is to rely on previously announced measures, including the abolition of non-dom status and an increase in capital gains tax.
Even so, speculation persists that smaller, carefully worded changes—such as freezing thresholds or introducing specific levies—might be used to raise revenue while keeping to the letter of Labour’s manifesto pledges.
What Lies Ahead in the Autumn Budget
As the Budget draws near, Reeves must decide how to address the gap. NIESR’s position is clear: credible, proactive measures are needed. Relying on optimistic economic growth projections alone is unlikely to satisfy markets or voters.
Caught between fiscal credibility, political commitments, and economic pressures, Reeves faces a tough test of leadership. Whether through tax, spending cuts, or rethinking her fiscal rules, the decisions made this autumn will shape the government’s reputation for years to come.