Middle East war may force Rachel Reeves to raise taxes AGAIN despite warning burden is ALREADY hitting economy – as new report warns of impact on inflation and GDP

Middle East war may force Rachel Reeves to raise taxes AGAIN despite warning burden is ALREADY hitting economy – as new report warns of impact on inflation and GDP

Rachel Reeves may be compelled to increase taxes once more amid escalating Middle East tensions that risk further destabilizing the economy.

The Chancellor has already added £75 billion annually in additional taxes to British citizens, with the Spring Statement highlighting that this financial strain is approaching a new peak.

A significant portion of these taxes has been allocated to rising welfare expenses, as Labour MPs pushed the government to halt spending cuts and remove the two-child benefits cap.

However, despite Ms. Reeves’ claims of improved fiscal health, the OBR indicated that her budgetary stability is largely dependent on windfall gains from surging stock markets.

The OBR warned that a 35% drop in stock prices could add £26 billion to the nation’s borrowing, effectively neutralizing her fiscal flexibility.

Following recent strikes by Donald Trump on Iran, the FTSE 100 has lost approximately a month’s worth of gains, sparking global market anxieties.

A new analysis from Bloomberg Economics suggests that an extended Middle East conflict could depress GDP and elevate inflation if oil prices remain elevated for extended periods.

The OBR documents accompanying Ms. Reeves’ Spring Statement showed that even before the crisis, the tax burden was on track to reach a historic 38.5% of GDP in 2030-31.

That is even higher than the 38.3% the watchdog forecast in November.

A million pensions face being dragged into the tax system by the ‘stealth raid’ of freezing thresholds for longer.

The OBR raised concerns that the Government is relying on a narrow base of higher-income taxpayers for the majority of its revenue, while the ‘stealth raid’ is highly responsive to inflationary shifts and wage growth.

“It’s very difficult to increase taxes faster than GDP – which is what’s needed really to bring the fiscal situation back under control – it’s difficult to do that without doing some damage to incentives to invest, work, save…”

David Miles of the OBR said this morning that it was investigating how much damage the high taxes were doing to the economy.

“I think having to raise taxes faster than GDP, it is very difficult to do that without having some knock-on effects which are probably on balance negative on employment, productive potential of the economy,” he added.

The IFS think tank noted that fulfilling NATO’s commitment to spend 3.5% of national income on defence – up from 2.4% – would require an annual cost of £35 billion.

That is equivalent to the combined budgets of the Ministry of Justice and Home Office, and would necessitate VAT rate increases of 3 to 3.5 percentage points.

IFS director Helen Miller stated: “The takeaway is that we should not expect the Government to be able to meaningfully increase what we spend on defence – if that’s what it decides it wants to do – without significantly cutting other Government programmes or raising taxes.”

She added: “Gas prices rose by more than 20% yesterday and are up almost 80% compared to Friday. The stock market fell almost 3%. The cost of borrowing rose sharply. Maybe these changes will be short-lived. There are many days with large market moves.”