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What spending cuts or tax rises Labour proposes to close a £22 billion shortfall and their likely political feasibility?
Executive summary
Labour has said it faces a roughly £22 billion “black hole” in the public finances that it has to address through a mix of spending changes and tax measures; officials and analysts say many obvious large levers (basic-rate income tax, VAT, NI) were ruled out by manifesto commitments, narrowing options and pushing the government to use smaller or more complex measures [1] [2]. Commentary and think‑tank estimates suggest straightforward small changes (e.g. targeted tax rises, asset taxes, or cancelling specific projects) would deliver only parts of the gap — many proposals would raise under £6bn each or require politically sensitive trade‑offs [3] [4].
1. The shortfall Labour describes and what drives it
Labour’s figure — the headline “£22bn black hole” — reflects a combination of legacy spending decisions, higher-than-expected public‑sector pay settlements and unfunded costs such as asylum support; Full Fact and the IFS highlight that much of the pressure comes from decisions about pay awards and previously unbudgeted flows rather than pure forecasting error [1] [5]. The IFS also argues some costs were predictable and therefore partly a political choice rather than an unforeseeable emergency, which narrows the argument that only inherited Conservative mismanagement explains the gap [5].
2. Major taxes Labour has pledged not to touch — and why that matters
Labour’s manifesto commitment not to increase income tax, VAT or national insurance substantially constrains the policy menu: a 1p rise in the basic income tax rate would raise about £7bn, but manifesto pledges largely ruled this out according to economists and commentators, meaning the Chancellor’s “big three” are politically off‑limits for now [3] [2]. That constraint forces ministers to consider smaller or more targeted tax changes, re‑prioritisation of spending, or complex revenue measures that are harder to sell politically [2].
3. Types of tax rises being discussed and estimated yields
Analysts and the Treasury’s public commentary point toward increases in less‑restricted areas such as capital gains tax, targeted CGT reforms, higher council‑tax bands, VAT on private school fees already introduced, or levies on specific sectors; some budget spells and reporting indicated increases to CGT and measures affecting private school fees and similar items ago [6] [7]. However, specialist analysis warns many of these options individually raise far less than the £22bn target — several plausible measures would together still “deliver less than £6 billion” in some scenarios, leaving a sizable residual to fill [3].
4. Spending cuts, cancellations and re‑prioritisation on the table
Labour officials and foreign reporting have identified cancellation or deferral of specific infrastructure projects and tightening capital spending as immediate levers — Le Monde cited scrapping certain projects (e.g., a £1.7bn tunnel) and cuts to road and hospital investments as examples Labour considered to find early savings of several billion [8]. The government has also signalled means‑testing or tighter targeting for certain benefits (e.g., winter fuel payments), which has already proven politically contentious in protests and polling [9].
5. Political feasibility — competing pressures and likely flashpoints
Political feasibility is constrained by manifesto promises, public opinion on spending cuts (especially to health, schools, and pensions), and sectoral backlash against targeted changes (e.g., farmers and pensioner groups protesting means‑testing) [9]. Economists warn that ruling out the “big three” taxes risks forcing a menu of more complex, economically risky or narrowly targeted taxes that are politically and administratively fraught [5] [2]. Cancelling visible projects can yield headline savings but provokes local political fights and accusations of broken promises [8].
6. What commentators and think‑tanks recommend or fear
Think‑tanks and financial commentators argue Labour should combine modest targeted revenue rises with spending reprioritisation and credible growth measures: the Institute for Fiscal Studies says some of Reeves’s proposed prioritisation makes sense but warns against politically costly stop‑gap choices, while advisory pieces suggest options will be “tricky” given manifesto constraints [5] [4]. Market and budgeting commentators also flagged that revised economic forecasts could quickly erode any small fiscal headroom Labour currently claims, increasing pressure for further action [2].
7. Bottom line and limits of current reporting
Available sources show Labour has a constrained menu — big broad tax rises are politically restricted, individual targeted measures yield limited sums, and cancelling projects or tightening benefits can produce early savings but carry political costs [3] [8] [9]. Available sources do not mention a single, fully specified package from Labour that definitively and transparently closes the full £22bn gap without breaking manifesto pledges; commentary instead maps options, estimates partial yields and flags the electoral and administrative risks of each route [4] [2].