Tax rises inevitable amid tariff trade war?

Newsletter issue – May 2025

The dust had barely settled on Rachel Reeves' Spring Statement before shockwaves were sent through financial markets following news of trade tariffs from America. Donald Trump's new tariff regime - which initially included enormous tariffs on most of the world's largest trading nations - has led to fears of a ripple effect that could envelop the UK economy.

And some leading economists in the UK have warned that the knock on effect of this situation will inevitably force the Chancellor to raise taxes at the next Budget in Autumn 2025. It comes just weeks after Ms Reeves had confirmed there would be no further tax rises at the Spring Statement.

Andrew Goodwin, chief UK economist at Oxford Economics, told The i Paper: 'I think we're likely to need a full rethink of fiscal policy, and the Chancellor has to decide what's most important - the manifesto pledges on tax, the spending plans or the fiscal rules? Because I think one of the three at least has to give.

Ms Reeves was questioned only a week after her Spring Statement by The Treasury Select Committee in Parliament.

She did not directly rule out raising taxes in the next Budget when that question was put to her. Instead, she stated: 'I'm not going to write another four years' worth of budgets. That would not be responsible. But I can assure the committee that I will not need to repeat a Budget on that scale because we have now wiped the slate clean and put our public finances on a firm footing.

Her latter comment related to the 2024 Autumn Budget where she announced a range of tax changes.

The Institute of Fiscal Studies has said Ms Reeves should consider the 20p basic rate of income tax at the next fiscal statement, with it being one of the simplest ways to significantly boost the Treasury coffers to help cope with the extraordinary circumstances it faces both at home and globally. But that would mean breaking a key manifesto pledge from last year's General Election.

No doubt the debate will continue to rage as the year goes on, especially if further turmoil in the markets continues to ratchet up the pressure on the Chancellor.

• The Taxation of Chargeable Gains Act (TCGA) 1992
• Income Tax Act (ITA) 2007
• The Corporation Tax Act (CTA) 2009