Rachel Reeves was facing a Labour revolt tonight after warning that everyone will suffer from her looming Budget tax raid – not just the ‘wealthy’.
Left-wingers have demanded the Chancellor spares the ‘working class’ after she took the highly unusual step of laying the ground for her fiscal package with an early morning speech in Downing Street.
In a blatant softening up exercise, Ms Reeves said there was a ‘clear choice’ between ‘investment and hope, or cuts and division’.
Ominously signposting a broad tax assault, she warned that ‘we will all have to contribute’ to getting the country back on track.
But rather than take responsibility for the grim situation, she offered a laundry list of excuses, including Brexit, Tory austerity, Donald Trump, Covid and the Ukraine war.
Ms Reeves dodged invitations to repeat Labour’s election vow not to increase income tax, national insurance or VAT.
She said she would do ‘what is right’ rather than ‘popular’ and prioritise ‘protecting our NHS, reducing our national debt, and improving the cost of living‘.
‘Any Chancellor of any party would be standing here facing the choices that I face,’ she insisted.
Speaking to LBC this evening, Ms Reeves rejected suggestions she would resign if she had to raise taxes again at her upcoming Budget on November 26.
‘What do you think would happen in financial markets if I did that?,’ she told Tonight with Andrew Marr.
‘I am not going to walk away because the situation is difficult. I was appointed as Chancellor to turn our economy around, and I’m absolutely determined to finish that job.’
At Cabinet this morning, Keir Starmer complained that ‘world events’ were spoiling the Government’s plans ‘on a daily basis’.
The Prime Minister dismissed the idea of closing the gap through ‘austerity’.
Ms Reeves’ intervention was branded a ‘waffle bomb’ by Tory leader Kemi Badenoch, who urged cuts to spending and welfare instead.
And it drew a furious reponse from Labour’s Left, with MPs and unions insisting that the ‘rich’ should be made to fill the black hole in the public finances – estimated at between £20billion and £50billion.
There was a nervous reaction to the Chancellor’s speech from markets, with the FTSE 100 and Pound falling sharply – although interest rates on government debt also eased slightly.
Chancellor Rachel Reeves made the highly unusual move of teeing up her fiscal package with a speech in Downing Street today
Labour MPs responded to Ms Reeves by insisting she must not try to raise more money from the ‘working class’
Brian Leishman, currently suspended from the Labour whip, also weighed in
Standing in front of a podium with the slogan ‘strong foundations, secure future’ and flanked by Union Jacks, Ms Reeves said there were no ‘easy answers’.
She warned that markets could be even more negative about lending to the UK if they did not believe her commitment to meeting her fiscal rules.
But it is barely a year since the Chancellor claimed her first Budget – the biggest tax-raiser on record – had ‘wiped the slate clean’.
‘I’m really clear. I’m not coming back with more borrowing or more taxes,’ she told the CBI last November.
Ms Reeves told reporters in Downing Street: ‘The continual threat of tariffs has dragged on global confidence, deterring business investment and dampening growth.
‘Inflation has been too slow to come down, as supply chains continue to be volatile, meaning the costs of everyday essentials remain too high.
‘And the cost of government borrowing has increased around the world, a shift that Britain, with our high levels of debt left by the previous government, has been particularly exposed to.’
Ms Reeves said: ‘As I take my decisions on both tax and spending, I will do what is necessary to protect families from high inflation and interest rates, to protect our public services from a return to austerity and to ensure that the economy that we hand down to future generations is secure with debt under control.
‘If we are to build the future of Britain together, we will all have to contribute to that effort.
‘Each of us must do our bit for the security of our country and the brightness of its future.
‘There is a reward for getting these decisions right, to build more resilient public finances with the headroom to withstand global turbulence, giving business the confidence to invest and leaving government freer to act when the situation calls for it, to continue to invest in our infrastructure and our industry to build a stronger economy and to get the cost of borrowing down, spending less on debt interest and more on schools and on our health service.’
Sir Keir warned Labour MPs last night that the Budget would involve ‘hard and serious decisions’ but insisted they would be ‘fair’.
A Downing Street readout of the Cabinet meeting this morning noted: ‘He said it was clear that previous governments had gone down the road of austerity, which had made things worse, not better.
‘The Prime Minister said the Government would not be going down that path, nor the path of taking risks with more borrowing.
‘He said taking risks with more borrowing did not mean money going to teachers, nurses or doctors, but to hedge funds.
‘The Prime Minister said a fair response to these challenges was needed, which would be set out at the Budget.’
Ms Reeves responded that her ‘challenges’ included ‘tariffs, unstable borrowing costs, inflation and long-term productivity’.
‘The Chancellor said she had been clear she would not repeat the mistakes of the past and emphasised the need to show Britain can be trusted once again,’ the readout added.
‘That was already happening as markets accept we are going to stick by our fiscal rules.
‘The Chancellor said this would mean taking the right decisions at the Budget, but she was prepared to take them, rather than follow the mistakes of previous governments.’
Maryam Eslamdoust, General Secretary of the Labour-backing TSSA union, said the Budget must stay ‘true to Labour values’.
‘If taxes are to rise to build the country and get the economy moving, that is no bad thing – but it is those with the deepest pockets who should pay more,’ she said.
‘Any rise in VAT or National Insurance would be counterproductive. Raising income tax on the highest earners, alongside a wealth tax for the richest in the country, is the only way forward. We urge Rachel Reeves to follow that course.’
Ms Reeves has been hiding from the media since the Daily Mail revealed last week that she broke the law by failing to obtain the licence needed to rent out her family home.
No10 has refused to say whether Labour’s manifesto pledge to not increase income tax, VAT or National Insurance still stands.
Ms Reeves is considering a proposal from the Left-wing Resolution Foundation to raise income tax by 2p, in what would be the first increase in the basic rate for 50 years.
The move could be partially offset by a 2p cut in National Insurance but would still raise an extra £6billion a year from pensioners and others.
If Ms Reeves targets income tax it will be the first time in 50 years the rate has been increased.
She is also looking to extend the six-year freeze on tax thresholds, dragging millions more into higher tax bands – despite previously warning the move would break Labour’s manifesto pledge.
Treasury officials are said to have been ordered to find ways of getting more money out of everyone with incomes of more than £45,000 a year.
Insiders claim that only Brits below that threshold – the bottom two-thirds of earners – are being defined as ‘working people’ to receive protection from Labour‘s tax assault.
That effectively brands the top third of earners as ‘wealthy’ – encompassing jobs such as HGV drivers, teachers and head chefs at the Wagamama restaurant chain.
Sources have confirmed that bigger property taxes are on the radar.
The Chancellor is said to be looking at dramatically hiking council tax for the top bands, which could affect over a million families.
That could mean an eye-watering rise from £3,800 to £7,600 for residents of a band G household in England – and from £4,560 a year to £9,120 for those in band H.
Rachel Reeves laid the ground for Labour to smash its manifesto pledges on tax today – saying she will take the ‘choices necessary’ at the Budget
But the intervention has ramped up fears that Brits face another brutal raid, with the black hole in the public finances estimated at between £20billion and £50billion
The move would hammer London and the South East, where property prices are higher. Critics warned it would spark a crisis for pensioners on fixed incomes and families who have stretched themselves to afford a dream home.
Capital gains, pension reliefs, inheritance tax and partnership structures have also been listed among the ways Labour could seek to raise funds.
Final decisions are unlikely to be made for another week or so, when the OBR will start factoring the Government’s plans into its draft forecasts.
The Treasury is believed to have downgraded productivity forecasts by 0.3 percentage points – adding an estimated £21billion to the black hole in the public finances.
Sluggish economic growth, rising debt costs and humiliating U-turns on efforts to curb the benefits bill could add a further £20billion to the gap Ms Reeves has to fill.
The Resolution Foundation – former home to a string of ministers and advisers drawing up the Budget – said today that tax rises are ‘inevitable’ and will probably total around £26billion.
Ms Reeves has already delivered the biggest tax-raising Budget on record last year, soaking Brits for £41billion.
Economists have warned this package might be on the same scale, and could have devastating impacts on growth.
Even a far smaller raid would leave Ms Reeves having announced bigger tax hikes in 16 months than Gordon Brown did over a decade.
Labour Party pictured in June 2024 when they launched their general election manifesto
After raising a record £40billion in tax at last year’s Budget, Ms Reeves said she had ‘wiped the slate clean’.
Following a business backlash, she told the CBI last November: ‘I’m really clear. I’m not coming back with more borrowing or more taxes.’
But low growth and higher government borrowing costs have triggered a deterioration in the public finances.
The Conservatives have urged the PM to sack his Chancellor if she breaks Labour’s tax pledges to the country.
At an event in central London, Mrs Badenoch said the government had ‘quietly’ abandoned efforts to curb the spiralling welfare bill.
‘The Chancellor’s speech was one long waffle bomb, a laundry list of excuses.
‘She blamed everybody else for her own choices, her own decisions, her own failures.’
Reform MP Richard Tice said: ‘Rachel Reeves has today confirmed what we all knew – she’s going to hammer working people with even more tax rises.
‘Instead of cutting waste and spending, deregulating and optimising for growth, we are just getting more of the same. Only Reform is serious about building an economy that unleashes growth, backs British business and helps those who set their alarm clocks every morning.’
