The Chancellor likes to blame the Tories for everything, and that so-called “black hole” has been her favourite stick to beat them with. She’s railed against it 34 times in Parliament. But her own record is now far worse.
It took the Conservatives 14 years to rack up that level of fiscal damage, a period that included cleaning up after the financial crisis and surviving a global pandemic. Reeves has blown past it in just 12 months.
Within days of winning the election, Reeves and PM Keir Starmer terrified businesses and consumers with their doom-laden rhetoric and harsh tax warnings. Growth flatlined, almost overnight.
Hiking taxes by £40billion in the autumn didn’t close the gap. It widened it, by hammering growth, killing businesses, smashing jobs and making people poorer.
Reeves’s centrepiece tax raid, a £25billion hike in employers’ national insurance, will have destroyed 375,000 jobs by year-end as cash-strapped firms stop hiring or shut down altogether. More jobs will go next year.
She then borrowed another £30billion for a spending splurge that’s left little to show for it except higher public sector pay.
As the backlash built, Reeves promised no more tax hikes this year. But Starmer quickly forced a retreat.
Now we know what we’re really facing. She must raise up to £50billion in her next Budget and taxpayers will foot the bill.
Today, the respected National Institute of Economic and Social Research (NIESR) delivered a damning verdict.
It calculates that Reeves is heading for a £41.2billion annual deficit by 2029–30. On top of that, she wants a wafer-thin £9.9billion fiscal buffer in case of emergencies.
Put the two together and the black hole grows to £51.1billion a year.
NIESR says closing that would require tax hikes or spending cuts on a staggering scale – the equivalent of raising both the basic and higher rates of income tax by five percentage points.
So what of Reeves’s much-vaunted “pro-growth” strategy? GDP is forecast to rise just 1.3% this year, falling to a dismal 1.2% by 2026.
Growth is evaporating just when we need it most. The truth is, we’re heading to inexorable fiscal meltdown.
As I’ve warned before, Reeves has boxed herself in. She can’t cut spending as the Labour left won’t wear it. She refuses to drop her “non-negotiable” fiscal rules. More tax hikes will smother growth.
NIESR director David Aikman put it bluntly: “At least one of these will need to be dropped. She faces an impossible trilemma.”
My bet? Reeves will do the one thing Labour always does. Hike taxes.
Reeves and Starmer swept into power with swagger, promising to “fix the foundations” of the economy. Instead, they unleashed a wrecking ball.
Her spending spree makes Boris Johnson look like a tightwad. Even Liz Truss’s mini-Budget fiasco pales next to Reeves’s misfire. At least Truss didn’t raise taxes into a recession.
This is the doom loop in action. The more Reeves taxes, the more growth shrivels. And the less growth we get, the more she borrows. Round and round we go.
Reeves’s only hope now lies in the Bank of England slashing interest rates to the bone. But Governor Andrew Bailey isn’t coming to her rescue, fearing he could reignite inflation.
More tax hikes are coming. Last year’s £40billion was only for starters. This is the main course.
Taxpayers will be dreading it. But one person is dreading it more: Rachel Reeves.