Key events
Reeves faces ‘impossible trilemma’ in budget, says NIESR thinktank
The National Institute of Economic and Social Research (NIESR), the thinktank saying Rachel Reeves will need to raise taxes to cover a £40bn deficit in the public finances (see 9.13am), says that the chancellor faces “an impossible trilemma”.
In his foreward to the report, David Aikman, the NIESR director, says:
The UK economy enters the second half of 2025 still confronting weak growth and stubborn inflationary pressures. While external factors – including continued trade policy uncertainty and persistent geopolitical risks – certainly matter, domestic challenges dominate the outlook. Chief among these is the government’s increasingly acute fiscal predicament. Simply put, the chancellor cannot simultaneously meet her fiscal rules, fulfil spending commitments, and uphold manifesto promises to avoid tax rises for working people. At least one of these will need to be dropped – she faces an impossible trilemma.
But it is not really a trilemma, Aikman suggests, because he argues that two of these options are not feasible.
The government is no longer on track to meet its “stability rule”, with our forecast suggesting a current deficit of £41.2bn in the fiscal year 2029–30. With the autumn budget approaching, the chancellor faces unenviable decisions. The spending review has already set departmental budgets tightly until 2029, limiting scope for further cuts. Meanwhile, manifesto commitments restrict the options for tax increases. This leaves the government either breaching its fiscal rules – risking higher borrowing costs or even market instability – or making politically difficult and economically damaging compromises at a time when … the poorest 10% of UK households face a further decline in their living standards this year.
Our view is that it will be crucial for the chancellor to restore market confidence by demonstrating fiscal discipline. This will require a determined attempt to rebuild the fiscal buffer and that will inevitably involve gradual but sustained tax increases or spending cuts. In charting this path, the government must prioritise protecting public expenditure that supports society’s most vulnerable, while safeguarding public investment essential for sustainable future growth.
Rachel Reeves needs to put up taxes to cover £40bn deficit, thinktank says
Rachel Reeves will need to raise taxes to close a government spending gap that is on course to reach more than £40bn after a slowdown in economic growth and higher-than-expected inflation, according to the National Institute of Economic and Social Research (NIESR), a thinktank. Phillip Inman has the story.
‘Worrying’ levels of screen time means young people losing confidence to socialise in person, Lisa Nandy warns
Good morning. Keir Starmer is out on a visit today and he will be doing broadcast interviews. It may be the only time we hear from him this week, and there is no shortage of topics that journalists will want to ask him about. By the end of the day we may get new, or newish, lines on Gaza, the “one in, one out” returns deal with France, tax rises and the black hole in the government’s finances (priced at more than £40bn, according to a report from a well-respected thinktank today), Ukraine, the case for and against disclosing suspects’ immigration status and the demonstration planned for this weekend against the decision to proscribe Palestine Action.
But Starmer wants to talk about something else – less party political, less ‘Westminster agenda’, but arguably as or even more important than these other topics: what the internet is doing to our children.
Officially, Starmer and Lisa Nandy, the culture secretary, are just announcing an £88m investment in youth clubs. But they also want to talk about what they suggest is the harm being done by social media to children, who they say are spending so much time on their screens that they are losing the ability to socialise in person with other people.
In a statement in the government’s news release about the funding, Starmer says:
Growing up today is hard for young people. As they navigate their way through the online world, too often they find themselves isolated at home and disconnected from their communities.
As a government, we have a duty to act on this worrying trend. Today’s investment is about offering a better alternative: transformative, real-world opportunities that will have an impact in communities across the country, so young people can discover something new, find their spark and develop the confidence and life skills that no algorithm can teach.
In an interview on the Today programme, Nandy was asked to elaborate on what this “worrying trend” was. She replied:
It keeps me awake at night. We when we were first elected into government last year, one of the first things that I did was to appoint a group of young people to oversee the first national youth strategy in several decades. I was astonished to find that we didn’t have one.
What we found through that process is that the majority of young people – and it does appear to be a majority – spend all, or almost all, of their free time alone in their bedrooms, online, and are losing their confidence to connect to people in the real world.
A significant number of them say that they have no adult in the world who they would trust to help and support them. That is really, really concerning.
And one of the reasons that we’re announcing this funding today is to open up opportunities to young people in youth clubs and in schools to live richer, larger lives because there is a pressing need for our generation to step up and help before it’s too late.
Here’s Eleni Courea’s overnight story about the initiative.
I will post more from Nandy’s interviews soon.
The Starmer visit is taking place in Hertfordshire this morning. Other than that, the diary is relatively empty, but, of course, that does not mean there will be nothing to cover; news is not always predictable.
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