The National Institute of Economic and Social Research (NIESR) has urged Chancellor Rachel Reeves to implement tax increases in the upcoming autumn budget to address a significant £41.2 billion shortfall in government finances.

Facing a challenging 'trilemma', Reeves must decide whether to prioritize public spending, adhere to her pledge of not raising taxes on working individuals, or meet her borrowing limits.

Despite a slight upward revision in the UK's economic growth forecast to 1.3% for 2025, projections for 2026 have been downgraded to 1.2%, reflecting ongoing economic challenges.

NIESR reports that the living standards of the poorest 10% of the UK population are currently 10% lower than pre-COVID levels, highlighting the need for targeted public expenditure.

Statistics reveal stark wealth disparities, with the poorest 20% of families holding only a quarter of the wealth of the richest 20% by age 50, raising calls for a wealth tax.

Some Labour party members advocate for a new flat wealth tax targeting individuals with assets over £10 million, which could potentially raise £12 billion.

Dodds has called for a public discussion on significant fiscal decisions expected in the autumn budget, emphasizing the importance of considering various tax reform proposals.

NIESR forecasts persistent inflation rates of 3.5% this year and 3% next year, suggesting that welfare spending reforms may be necessary to support employment.

Recent official figures indicate a £44.5 billion deficit in the first three months of the fiscal year, diverging from earlier forecasts and raising concerns about fiscal sustainability.

Critics, including Conservative spokesperson Mel Stride, have attributed rising unemployment and inflation to Labour's economic management, suggesting that tax increases may be unavoidable.

While Reeves has previously stated that tax rises would be necessary following the removal of welfare payment restrictions, she has recently hesitated to rule out tax increases amid disappointing economic data.

With growth stagnating at 1.3% and inflation exceeding targets, Professor Stephen Millard from NIESR emphasizes the need for Reeves to consider both tax increases and spending cuts in the forthcoming budget.