Reeves risks breaking tax pledge as US tariffs threaten UK growth

Economists warn that Rachel Reeves, the UK Chancellor, may be forced to break Labour’s pledge not to raise taxes for working people due to the economic impact of Donald Trump’s new US tariffs. The EY Item Club has downgraded UK growth forecasts, projecting that the tariffs could significantly reduce business investment and tax revenues, threatening to eliminate the £9.9 billion fiscal headroom Reeves has maintained under Labour’s fiscal rules. These developments might require the government to either reconsider its fiscal rules or increase key taxes such as income tax, national insurance, or VAT, despite previous promises. Meanwhile, Reeves faces additional pressure from unions demanding higher public sector pay rises than the government has proposed, potentially increasing public spending amid already higher-than-expected borrowing. The overall economic uncertainty caused by Trump's tariffs is expected to dampen consumer and business confidence, further complicating the UK’s fiscal outlook. The government is currently seeking a trade deal with the US to mitigate the tariffs' impact.