Chancellor Rachel Reeves must raise taxes immediately in order to plug a fresh £50bn hole in the public finances, a UK thinktank said on Wednesday.

According to the National Institute of Economic and Social Research (NIESR), UK government finances have been hit by slowing economic growth, a weak jobs market and the cost of Labour’s U-turns on welfare spending.

NIESR recommended “a moderate but sustained increase in taxes” including reform of the council tax system to make up the shortfall. It also suggests that the government could raise revenue through changes to the scope of VAT, pensions allowances and prolonging the freeze in income tax thresholds, which is set to end in 2028.

Reeves is now on course to miss her borrowing targets by £41.2bn, NIESR predicted in its report, facing an “impossible trilemma” of big tax hikes, spending cuts or a change to fiscal rules that she has said are non-negotiable.

NIESR added that if she also wants to restore a previous £9.9bn fiscal buffer, she might need to find more than £50bn of savings or extra taxes in the autumn budget statement.

In its manifesto, Labour promised not to raise taxes such as income tax, VAT or national insurance on “working people”.

But David Aikman, director of the thinktank, said it was increasingly difficult for the chancellor to avoid raising taxes on working people if she wanted to maintain her fiscal rules and stick to spending promises.

If she is aiming to restore the £9.9bn of headroom maintained since last year’s budget, she must raise taxes or cut spending by £51.1bn.

NIESR nudged up its forecast for British economic growth for this year to 1.3% from its forecast of 1.2% in May. However, it cut its projections for all the following years up to 2030, largely due to the impact of Donald Trump’s trade tariffs on the global economy.

The forecasts are significantly weaker than those of the Office for Budget Responsibility (OBR), whose projections underpin the government’s tax and spending plans. NIESR expects 1% growth in 2028 compared with the OBR’s 1.7%.

Stephen Millard, NIESR’s deputy director for macroeconomics, said the difference between those forecasts and NIESR’s £41bn estimate of the shortfall probably lay largely in the think tank’s lower forecasts for economic growth.