Rachel Reeves’ 2025 Economic Policies: Blunders in Tax, Debt, and Growth

July 24, 2025 Feniks

-By Feniks

An Analysis of Rachel Reeves’ 2025 Economic Policies and Blunders

Rachel Reeves’ 2025 economic policies as UK Chancellor aim to stabilize public finances and drive growth, but they face criticism for falling short. The Office for Budget Responsibility (OBR) slashed its 2025 GDP growth forecast from 2% to 1%, citing global trade tensions, including Donald Trump’s 25–50% tariffs on UK exports, and inflation at 3.2–3.7% [1]. With a £40 billion tax increase, £105.2 billion in debt servicing costs, and £3.4–4.8 billion in welfare cuts, Reeves’ approach risks stifling businesses, increasing poverty, and missing fiscal targets [2, 3]. Drawing on Milton Friedman’s monetarist principles, the Feniks Economics Team analyzes Reeves’ challenges—tax hikes, soaring debt, and sluggish growth—and their impact on the UK economy.

Rachel Reeves’ Tax Hikes in 2025: A Burden on Businesses

Reeves’ Autumn 2024 Budget introduced a £40 billion tax increase, including £25 billion from higher employer National Insurance contributions, pushing the UK tax burden to 37.7% of GDP by 2027/28, a post-1948 high [2]. The Confederation of British Industry (CBI) warns that these taxes, combined with minimum wage increases, raise payroll costs, curb investment, and risk job losses in retail and manufacturing [4]. Small businesses, employing 60% of the UK workforce, face higher costs, potentially passing expenses to consumers or cutting staff [2].

Milton Friedman’s negative income tax, outlined in Capitalism and Freedom (1962), proposed a simpler system to incentivize work and reduce bureaucracy [5]. Reeves’ complex tax structure may deter foreign investment and hinder competitiveness. The National Institute of Economic and Social Research (NIESR) notes that while the budget’s fiscal expansion may drive 1.5% growth in 2025, living standards for the bottom 40% of households won’t recover until 2027 [6].

UK Economic Growth Forecast 2025: A Downturn

The OBR’s 2025 growth forecast of 1%, down from 2%, reflects Trump’s tariffs on UK steel, aluminum, and cars (25–50%), which threaten 16% of UK goods exports to the US [1]. EY Item Club predicts an even lower 0.8%, citing inflation at 3.7% mid-2025, falling to 2.1% in 2026 and 2% by 2027 [7]. Second-quarter 2025 GDP grew by only 0.3%, down from 0.7% in Q1, signaling a slowdown [8].

Reeves’ £78 billion investment in infrastructure, like East West Rail and the Oxford-Cambridge Growth Corridor, aims to boost productivity, but the OBR projects only a 0.2% GDP increase by 2029 [1]. Friedman’s Monetary History of the United States (1963) emphasized stable money supply growth over fiscal spending, which risks crowding out private investment [9]. Deregulation, such as easing planning restrictions, could address the UK’s decade-long productivity stagnation, currently 1% below October 2024 projections [1].

Debt and Borrowing: A Fiscal Misstep

UK debt servicing costs reached £105.2 billion in 2025, surpassing spending on defense, justice, and the Home Office combined [2]. Public sector net debt nears 100% of GDP, with borrowing at £137.3 billion in 2024/25, up from £127.5 billion [1]. Bond yields at 4.8% and a £22 billion “black hole” inherited from the prior government exacerbate pressures, with some projecting a £50 billion shortfall by October 2025 [10]. Reeves’ borrowing risks breaching her fiscal rules, with a 54% chance of missing debt reduction targets by 2030 [1].

Friedman’s call for constitutional spending limits (Essays in Positive Economics, 1953) contrasts with Reeves’ approach [11]. Her U-turn on welfare cuts, including £5 billion for pensioners’ fuel bills, relies on debt markets’ “goodwill” [12]. The OECD suggests closing tax loopholes and targeted spending cuts to restore fiscal headroom [13].

Welfare Cuts and Social Impact

Reeves’ £3.4–4.8 billion welfare cuts, including a 50% reduction in Universal Credit’s health element and tightened Personal Independence Payments (PIP) eligibility, aim to reduce economic inactivity [3]. An impact assessment projects 3.2 million families losing £1,720 annually by 2029/30, with 250,000 more in relative poverty [14]. Over 100 disability organizations criticize these cuts for worsening health and poverty [15].

Reeves claims households will be £500 better off by 2029, but Oxfam calls the Spring Statement a “new low” in fighting inequality, suggesting wealth taxes on the richest [16]. Friedman’s market-driven job creation, through tax incentives, could address inactivity without harming vulnerable groups [5].

Looking Ahead: Can Reeves Recover?

Reeves highlights achievements like three interest rate cuts to 4.25% and trade deals with the US, EU, and India [17]. Her planning reforms aim to deliver 1.3 million new homes by 2029, boosting GDP by £6.8 billion [1]. However, with inflation, tariffs, and recession risks, Reeves must balance fiscal discipline with growth. Friedman’s market-driven solutions suggest deregulation and tax simplification over heavy spending or cuts that risk social harm [5].

Rachel Reeves’ 2025 economic policies face challenges, with £40 billion tax hikes straining businesses, £105.2 billion debt costs, and growth forecasts cut to 0.8–1% [1, 2, 7]. While long-term projections (1.7–1.9% by 2026–2029) offer hope, her fiscal approach diverges from Friedman’s principles, risking stagflation and inequity [1, 5]. The Feniks Economics Team urges deregulation and tax reform to unlock growth. Share your views: Are Reeves’ policies a pragmatic response to global uncertainty, or a fiscal misstep? Comment below!

References:

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Feniks Knows Best

Rachel Reeves’ 2025 Economic Policies: Blunders in Tax, Debt, and Growth

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