The Chancellor is caught between a rock, a hard place, a great big boulder, and a cruel array of fiscal spikes. She’s in a total bind, and her final exit route has just been sealed.

Labour is on course to borrow a staggering £170billion this year. Far from shrinking, the annual budget deficit is growing. Our £2.85trillion national debt will soon race past £3trillion and won’t stop there.

Reeves inherited a mess and made it worse. She’s killed growth by hiking taxes, destroying jobs, borrowing billions, scaring away the rich and botching attempts at cutting public sector spending.

The economy shrank in April and May. Forecasters have downgraded growth prospects for 2025 and beyond. That deepens the fiscal black hole.

So what can she do? She had four ways out of this, but they’ve been shut down one by one. Now her fallback position has disappeared too.

The first was to cut state spending. After the disability benefits rebellion, the Labour left won’t allow it. Instead, spending is more likely to rise, with Donald Trump forcing us to plough more into defence.

Her second option would be to borrow more. That’s no longer possible either. She’s already borrowed £50billion more than planned since taking office.

In May, the IMF warned Reeves has “limited space” for more due to the UK’s high debt and elevated borrowing costs.

Can’t spend, can’t borrow. Her first two escape routes are both blocked. So what’s left?

To reassure markets, Reeves imposed two strict fiscal rules. One says national debt must fall as a share of GDP over five years. The other states that day-to-day spending must be funded from tax, not borrowing.

Fiddling with these won’t be easy, given that Reeves has called them “non-negotiable”. If she scraps them, she risks a repeat of the Liz Truss bond market meltdown. Reeves won’t want her own wet lettuce moment.

So Reeves can’t spend, can’t borrow, can’t axe her fiscal rules. That still leaves a fourth and final lever: more tax.

Paul Johnson, director of the Institute for Fiscal Studies, reckons she’ll go for that. He says more tax hikes are “almost inevitable”.

But there’s a problem here too. New figures released this week show that further tax increases may now reduce Treasury revenues rather than increase them.

In her October 2024 Budget, Reeves hiked capital gains tax (CGT) rates. The result? Revenues collapsed.

In the first half of 2025, CGT receipts dropped to £11.8billion, down from £13.5billion a year earlier. That’s a £1.7billion fall.

Tax expert Shaun Moore at Quilter called it a “policy backfire”. Investors are simply holding assets such as property or businesses or restructuring to avoid paying more CGT.

Reeves has stumbled across a truth economist Arthur Laffer discovered way back in 1974. Tax too much and governments receive less of it. It’s called the Laffer curve, and Labour has crossed it.

This also kills off a cherished left-wing fantasy, that a wealth tax will save the day.

Campaigners dream of a 2% annual levy on assets over £10million. But as Moore notes, CGT avoidance shows the wealthy will simply move their money or move abroad.

Scrapping non-dom status has already triggered a slow exodus. A wealth tax would speed that up.

Reeves is now in a quadruple bind. Can’t cut, can’t borrow, can’t relax the rules and can’t tax her way out.

She’s entered a doom loop where every option does more harm than good.

The only way she can raise enough tax is to hike one of the big three: income tax, national insurance or VAT. They’re harder to dodge.

But again, there’s a huge obstacle: Labour’s manifesto pledge not to touch them. Voters will never forgive that.

Reeves is trapped: by the economy, by the bond markets, by her backbench MPs and by her own promises.

There’s no way out. This cannot end well. For Reeves or for us.