Rachel Reeves is facing growing pressure over potential tax hikes targeting pensioners and savers, as economic headwinds threaten to erode the already fragile fiscal headroom she outlined in the Spring Statement.
The Chancellor has left herself with what the Institute for Fiscal Studies (IFS) calls a “historically slim margin” against her fiscal rules, increasing speculation that she may be forced to raise taxes in an Autumn budget.
Paul Johnson, director of the IFS, warned that “there is a good chance that economic and fiscal forecasts will deteriorate significantly between now and an autumn budget.”
He added, “If so, she will need to come back for more, which will likely mean raising taxes even further.”
While Labour pledged before the election not to increase income tax, VAT, or national insurance, Reeves has refused to rule out changes to pension taxation.
Johnson highlighted this uncertainty as a cause for concern: “One of the reasons I worry about pensions taxation is it looks like a nice juicy place to go for a lot of money.”
At the same time, savers could also face a stealth tax raid under new Treasury proposals to enhance HMRC’s ability to collect tax on savings interest.
The proposed changes would allow the taxman to more easily dock payments from workers’ salaries by refining how savings tax data is matched to taxpayers.
Consultation documents published after the Spring Statement reveal HMRC may soon require banks to provide additional personal data, including National Insurance numbers, to improve tax collection efficiency.
Treasury officials argue this would reduce errors and ensure tax compliance, but critics warn it could mark another step toward mass financial surveillance.
Sir David Davis, the former Conservative Cabinet minister, branded the move “completely unjust and improper.”
He added, “The simple truth is HMRC makes mistakes, and allowing them to step in and arbitrarily take your savings in circumstances where they may well have made a miscalculation is completely unjust.”
The changes coincide with soaring tax revenues from savings. HMRC estimates that £10.4 billion will be collected in savings tax in 2024-25—a tenfold increase since 2021-22—driven largely by higher interest rates and frozen tax thresholds pulling more people into the net. An additional 893,000 people are expected to pay tax on savings by 2028-29.
Reeves is under pressure to maintain fiscal discipline while avoiding unpopular tax rises. Her Spring Statement sought to rebuild £9.9bn in fiscal headroom through welfare and departmental spending cuts, but rising government borrowing costs and global economic volatility have already eaten into this buffer.
The Office for Budget Responsibility (OBR) has warned that if Donald Trump’s escalating trade war leads to a severe economic downturn, the Chancellor’s limited room for manoeuvre could be wiped out entirely.
Hours after Reeves addressed the Commons, Trump announced a punitive 25% tariff on all car imports to the US, underscoring the uncertain outlook.
With further welfare cuts politically unpalatable and spending plans difficult to renegotiate, extending the freeze on personal tax allowances is seen as a likely revenue-raising measure. Analysts suggest this alone could generate around £10bn, but it would come at the cost of dragging millions more into higher tax brackets.
As speculation mounts, Johnson urged Reeves to provide clarity: “Given that she didn’t do anything back in that (October) budget, I really wish the Chancellor had said ‘and I am not going to do anything for the rest of this Parliament.’”
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