As Chancellor Rachel Reeves prepares to reveal her new tax and spending plans, there's a lot at stake for the UK economy. Her budget is part of the Labour government's strategy to repair public finances while aiming to jumpstart economic growth. However, the impact of these measures might bring challenges in the short term, especially for middle-income households, wealthier individuals, and businesses.

Key Areas in Reeves’ Budget

Source (FT.com)

1. Tax Increases and Spending Plans
   Reeves is set to introduce significant tax hikes intended to boost funding for public services. These changes are expected to have wide-ranging effects:

   • Employer National Insurance Contributions could rise by up to £20 billion, impacting wages and consumer prices.
   • A freeze extension on personal tax thresholds could generate approximately £7 billion annually, potentially impacting taxpayers across income levels.
   • Additional Taxes: Expect value-added tax (VAT) on private school fees, which could raise around £1.5 billion for state education funding. Higher taxes on the private equity industry, capital gains, and inheritance are also under consideration to ensure wealthier taxpayers contribute more.

2. Funding for Public Services Without Austerity
   Reeves promises not to bring back austerity but has noted that meeting her goals will require an estimated £40 billion through increased tax revenue. Part of the budget will focus on:

   • Health Services: The NHS will remain a top priority, with other areas receiving a one-year settlement for the fiscal year 2025-26.
   • Reevaluation of Overspending: Following a £22 billion overspend discovery, fiscal adjustments may follow to stabilize the budget and prevent future overspending.

3. Investment in Infrastructure and Growth Initiatives
   Reeves plans to pave the way for £50 billion per year in additional borrowing specifically for government investments. Here’s what to expect:

   • Revised Fiscal Rules: A new debt measure that includes assets like student loans could help maintain a downward trend on debt over five years while allowing investment.
   • Capital Investment: Key projects will include £1.5 billion for NHS surgical hubs and new scanners, and £1.4 billion to improve school infrastructure.

4. Economic Growth Prospects
   While recent IMF forecasts show modest growth expectations for the UK economy, Reeves’ budget aims to create a longer-term growth narrative. Economists remain cautious, citing potential short-term obstacles. However, investment in public services is expected to yield benefits beyond the immediate five-year forecast, potentially driving stronger growth over the next decade.

5.