Chancellor Rachel Reeves must now explore new Rachel Reeves financial options after her welfare reform plans collapsed. The government’s projected £5bn savings from benefit cuts by 2029-30 have evaporated following major concessions. With Labour’s £10bn fiscal buffer nearly gone, Reeves faces tough decisions ahead of the Autumn Budget.
One of the Rachel Reeves financial options is hoping for stronger growth and lower debt costs. However, this is risky. Earlier this year, rising interest payments and weak tax revenues wiped out her existing buffer. The Office for Budget Responsibility (OBR) also slashed its 2024 growth forecast to just 1%. While a recent US-UK trade deal eased some pressure, steel tariffs remain unresolved.
Reeves recently finalized a Spending Review, directing £30bn extra yearly to the NHS and defense. Asking departments for more savings now would appear chaotic. Scrapping the two-child benefit cap costing £3.5bn also seems unlikely after Sir Keir Starmer’s vague commitment to “look at” it.
Another Rachel Reeves financial options could be adjusting her self-imposed fiscal rules. She currently mandates that day-to-day spending must be funded by taxes, not borrowing, and debt must fall relative to GDP within five years. Changing these rules might spook markets, repeating the chaos of Liz Truss’s 2022 mini-budget.
The IMF suggests cutting OBR assessments from twice to once yearly. This could ease pressure on Reeves’ dwindling headroom. However, bypassing independent oversight risks credibility, especially after her new law requiring OBR reviews for major fiscal changes.
Labour vowed no hikes on income tax, NI, or VAT for “working people.” Yet extending the Tory-era threshold freeze dragging more earners into higher brackets could yield £7bn by 2028. While technically a tax rise, it may be Reeves’ least damaging Rachel Reeves financial options.
With borrowing costs rising and the pound slipping, investors are wary of further instability. As Reeves weighs these Rachel Reeves financial options, her next moves will define Labour’s economic credibility and her own future as chancellor.
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