Chancellor Rachel Reeves’ fiscal headroom is in danger of being eroded

Rachel Reeves may have to tear up Labour’s manifesto tax commitments to meet her tight fiscal rules, economists have warned, as the Chancellor battles to balance the books amid calls for higher spending on defence and welfare.

A suite of new day-to-day spending commitments made by the Treasury in recent weeks, including reversing cuts to winter fuel payments, scrapping the two-child benefit cap and increasing defence spending as a share of GDP are set to bulldoze through Rachel Reeves’ wafer-thin £9.9bn fiscal headroom.

That could be compounded by increased borrowing rates, which add an extra £10-11bn in debt service costs by the end of the decade, according to projections by Oxford Economics.

The combined changes c

See Full Page