## The Challenges of Being a Chancellor: Rachel Reeves’ Difficult Decisions
When [Rachel Reeves](https://www.theguardian.com/politics/rachel-reeves) first delivered her budget speech in the House of Commons on 30 October, she was a picture of pride. Addressing girls and young women everywhere, she proclaimed: “Let there be no ceiling on your ambition, your hopes and your dreams.”
### Economic Struggles and Financial Predicaments
However, as we fast-forward four months, the once-hopeful atmosphere has drastically changed. Westminster, it appears, is sceptical of Reeves’s current predicament. Economic growth has stalled unexpectedly; the Bank of England downgraded its forecast from 1.5% in November to 0.75% [this month](https://www.theguardian.com/business/2025/feb/06/unambiguously-bleak-bank-of-england-forecasts-lay-way-for-spending-cuts). This scenario has caused borrowing costs to rise, leaving Reeves juggling a delicate financial tightrope.
### Pressures on the Treasury
In this dire situation, the government’s financial reserves are dwindling. The [£9.9bn of headroom](https://www.theguardian.com/politics/2025/jan/08/rachel-reeves-says-she-has-iron-grip-on-finances-as-borrowing-costs-surge) likely evaporated when the Office for Budget Responsibility delivered its forecast. Consequently, Reeves faces formidable international threats, such as Donald Trump’s trade tariffs impacting the UK’s economy.
### Potential Strategy on Weighty Fiscal Decisions
Labour MPs are aware of three immediate solutions for Reeves, each with political consequences. Primarily, raising taxes during the spring budget is on the cards. Cutting public spending more than intended is another, while breaking her “iron-clad” rules is the least favourable.
However, decision-making might demand unconventional measures. Economist Rob Wood at Pantheon Macroeconomics warns against inaction, indicating it could lead to an adverse market reaction. Similarly, James Smith of the Resolution Foundation, posits that Reeves faces stark choices: introducing unpopular tax hikes or severe public service cuts would mean risking market confidence.
### The Hallowed Fiscal Rules
Reeves has already spoken emphatically against pursuing any of these routes. On taxes, she had previously pledged not to extend the Tories’ freeze on tax thresholds, but predicament might force her hand. Reversing her promise could generate significant funds. Nevertheless, during her budget speech, she declared the government’s commitment to protecting working people by avoiding such measures.
Reiterating her stance, she assured the public that choices on tax would protect their interests, refusing to seek more taxation in the spring. This position limits her policy manoeuvres further.
### Reports from the Institute for Fiscal Studies
Spending cuts are equally contentious. Reeves and Keir Starmer have voiced opposition to return to austerity, repeatedly emphasising maintaining government pledges. Economists anticipate that breaking fiscal rules, while efficient, is implausible. “The most unthinkable of all,” remarked one senior economist, adding that the markets wouldn’t react favourably.
Ben Zaranko from the Institute for Fiscal Studies shared his perspective, suggesting that economic growth could be a solution. Nonetheless, even a significant infrastructure boost may not yield timely results. “It’s commendable that growth proposals focus on long-term benefits, but these results won’t ease current constraints,” warned Zaranko.
### The Way Forward
Reeves now stands at a crossroads where the stakes are high. Her dilemmas underscore the intricate balance a chancellor must maintain between fiscal policy and economic realities. The looming spring statement will likely indicate the imminent path she must tread.
