Concerns are escalating about a potential tax surge by Rachel Reeves following reports that the 海角视频 economy contracted in May; however, an Office for Budget Responsibility (OBR) official cautioned the Chancellor against any rash fiscal actions, including tax increases.
The Chancellor finds herself under fresh scrutiny as economists caution that the government's £190bn spendthrift ways, inconsistent policy decisions, and unsatisfactory growth indicators may lead to a £30bn funding gap.
The Office for National Statistics (ONS) disclosed that the 海角视频 economy diminished by 0.1 per cent in May, defying financial sector forecasts of a 0.1 per cent expansion, contributing to heightened concerns over taxation.
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Yet, an OBR committee member has sounded the alarm noting that the British "ratio [of] tax [to] GDP is now getting to levels that we really haven't seen since the Second World War".
Are tax hikes on the horizon?
Speaking to CNBC, Professor David Miles commented: "The scope to simply just raise more and more tax revenue is definitely limited", and further tax rises would introduce "so many discentives" affecting saving, investment, and employment.
Miles argued that a scramble to elevate taxes "wherever you could find them" might significantly impair the economic growth potential.
These comments were made subsequent to the OBR's Tuesday report, which painted a bleak picture for the 海角视频 economy facing a "daunting year" amidst unfunded expenditure pledges and mounting global trade frictions.
The report indicated that recent policy reversals on welfare reforms and winter fuel payments were "not reflected in medium-term forecasts and budgets," and were anticipated to place additional pressure on public finances.
Is the economy set to deteriorate further?
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While the economy experienced a boom with 0.7 per cent growth in the first quarter, it was followed by a contraction of 0.3 per cent in April.
Barret Kupelian, chief economist at PwC, suggested that the second consecutive month of economic contraction could signal the start of a trend.
Kupelain stated: "A single month's GDP is like a lone brushstroke; it tells you little. However, when paired together with other months, it gives us an indication of the direction of travel for the economy. And that story is beginning to turn sour for the 海角视频."
The ONS attributed the slump to declines in construction, oil and gas extraction, car manufacturing and pharmaceutical production.
The manufacture of motor vehicles, trailers and semi-trailers industry saw a decrease of 3.7 per cent in May 2025, following a drop of 9.5 per cent in April 2025. This occurred despite the 海角视频 securing a trade agreement with the US that outlined a lower tariff rate of ten per cent on the first 100,000 海角视频-manufactured vehicles.
"Tariff uncertainty still hangs over the industry like a stubborn fog. The services sector grew marginally, offsetting some of the negative momentum in the rest of the economy," Kupelain added.
Kupelian noted that prior to the release of the new figures, growth projections had the 海角视频 positioned mid-table among the G7 nations, with a growth rate of around 1%. However, he cautioned that with "growth momentum rapidly slowing, there's a genuine risk we slip down the rankings."
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Economists at KPMG had previously warned that a growth forecast of just 1.2% would result in public sector revenues falling short of Reeves' expectations, following the Spending Review.
Labour's latest U-turn
This renewed fiscal pressure comes on the heels of Labour's latest policy reversal on welfare reforms, which ministers had anticipated would yield £5bn in savings.
The government has declined to rule out various tax increases, including a wealth tax, which Sir Keir Starmer did not dismiss during Prime Minister's Questions.Additionally, Starmer did not commit to extending the freeze on income tax thresholds, often referred to as a "stealth tax."
The Institute for Fiscal Studies (IFS) has suggested that freezing thresholds could potentially generate nearly £9bn in revenue for the government.