Rachel Reeves has positioned Labour to fight the next general election with tax increases and spending cuts that resemble a work of \u201cfiscal fiction\u201d, an analysis by leading economists has warned.<\/p>\n
In its verdict on the chancellor\u2019s budget<\/a>, the Institute for Fiscal Studies (IFS) said the chancellor had chosen a high-risk strategy by backloading her plans to start just before voters go the polls in 2029.<\/p>\n Helen Miller, the thinktank\u2019s director, said the budget plans would involve \u201cnear-heroic restraint in an election year\u201d and suggested that Labour<\/a> may ultimately be forced to abandon some of its tax-raising measures or planned spending cuts.<\/p>\n \u201c[It is] a backloaded set of tax rises that almost entirely delay the pain. It\u2019s reminiscent of the fiscal fictions of recent years. I hope this is a government able to deliver on its plans. But I have my doubts,\u201d she said.<\/p>\n With Labour trailing Nigel Farage\u2019s Reform UK in the opinion polls, the IFS said Reeves\u2019s decision to freeze income tax and national insurance thresholds<\/a> for an extra three years would hit workers in the pocket.<\/p>\n By 2029, more than a quarter of all taxpayers are expected to be dragged into the highest income tax brackets. Basic-rate taxpayers will be expected to pay \u00a3220 more tax each year by 2029, while those on a higher-rate will pay \u00a3600 more.<\/p>\n Reeves herself warned at last year\u2019s budget that extending the freeze, first introduced by the Conservatives and now described by opposition parties as a war on the middle class, would hurt working people.<\/p>\n Separate analysis by the Resolution Foundation<\/a> published on Thursday showed that almost three-quarters of the \u00a377bn of extra tax over the next five years would come after April 2029 \u2013 with as much as \u00a326bn in 2029-30 alone, when the next general election is expected.<\/p>\n Other budget measures due to come in near the end of the parliament include: a pay-per-mile levy on electric vehicles from April 2028<\/a>, and a \u00a32,000 annual cap<\/a> on how much can be paid into salary-sacrifice pension schemes without incurring employer and employee national insurance contributions.<\/p>\n The government also plans to limit growth in day-to-day departmental spending to about 0.5% a year in real terms in the two financial years from April 2028, down from a previous assumption of about 1% a year.<\/p>\n The Resolution Foundation said the savings drive being pencilled in would amount to \u201cpre-election austerity\u201d, but the Treasury has argued that its savings will come from efficiencies rather than cutting services.<\/p>\n However, the IFS noted that successive governments had typically topped up spending plans. \u201cPerhaps the government really will be able to find new efficiency savings. Or, maybe, when the time comes, and as the election looms it will find that the spending plans are unrealistically low,\u201d Miller said.<\/p>\n Economists had warned ahead of last year\u2019s general election<\/a> that tough tax and spending decisions were needed regardless of the party forming the next government, amid increasing pressures on the exchequer from an ageing population, rising debt interest costs, and commitments to raise defence spending.<\/p>\n The IFS cautioned at the time that Reeves and her Conservative predecessor, Jeremy Hunt, were essentially locked in a \u201cconspiracy of silence\u201d, accusing both of making unrealistic tax and spending promises.<\/p>\n In her make-or-break budget on Wednesday, Reeves announced \u00a326bn of tax rises <\/a>targeted at Britain\u2019s wealthiest households to help plug a gaping shortfall in the public finances.<\/p>\n