Reeves puts country on notice for tax hikes as ‘each of us must do our bit’

Rachel Reeves has warned millions of Britons they could face higher taxes because “we will all have to contribute” to securing the country’s economic future.

Ahead of the November 26 Budget, the Chancellor would not commit to maintaining Labour’s manifesto promises not to raise income tax, national insurance or VAT, fuelling speculation.

She blamed global problems including the tariff war triggered by US President Donald Trump and domestic issues including the budget watchdog’s expected downgrade of economic productivity for the “hard choices” she will make.

But she insisted her Budget would focus on cutting NHS waiting lists, addressing the cost-of-living crisis and reducing the burden of interest on government debt.

Ms Reeves took the unusual step of delivering a speech three weeks ahead of her Budget to prepare the ground for the expected tax increases she will announce.

Speaking in Downing Street, she said: “As I take my decisions on both tax and spend, 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.”

The Office for Budget Responsibility (OBR) is expected to heavily downgrade its previous forecasts for productivity, adding to the Chancellor’s headaches.

Ms Reeves said “it is already clear that the productivity performance that we inherited from the last government is weaker than previously thought” which “has consequences for the public finances” in terms of lower tax revenue.

The OBR’s review of productivity is likely to be “the most impactful thing in the Budget, in terms of the change in the fiscal and economic outlook”, she said.

Economists have estimated that Ms Reeves will have to find billions to plug a black hole caused by U-turns on welfare cuts, promises to increase defence spending and increased debt interest costs.

The Chancellor also wants to give herself a bigger buffer than the almost £10 billion she previously had against her rule of balancing day-to-day spending against tax receipts in 2029-30.

The Resolution Foundation think tank has estimated she will need to raise taxes by £21-£26 billion to remain within her target and increase the “headroom” to absorb further shocks.

That has led to the expectation she will be forced to increase one of the big revenue-raising taxes which was previously ruled out in the manifesto.

Ms Reeves did not use her speech to confirm hikes to taxes but she made clear that she would not rely on austerity measures or increased borrowing to balance the books.

If Ms Reeves does rip up the manifesto and increase the basic rate of income tax, she would be the first Chancellor to do so for 50 years.

She repeatedly declined to confirm she will stick to the manifesto commitment, telling reporters: “We’ve got to do the right things.

“The problem of the last 14 years is that political expediency always came above the national interest, and that is why we are in the mess that we are in today.”

Ms Reeves said she had been appointed Chancellor “not to always do what is popular, but to do what is right”.

The Chancellor later insisted on LBC’s Tonight With Andrew Marr that she would not resign if she does make tax rises at the Budget.

“And what do you think would happen in financial markets if I did that?” she told the broadcaster.

Officials hope that taking action to lower inflation, the prospect of the Bank of England cutting interest rates to ease mortgage costs and efforts to reduce energy bills will ease cost-of-living pressures even if taxes increase.

Breaching a manifesto commitment would be a political gamble for the Chancellor but she insisted “the public will respond better to doing the right thing than to just doing the expedient thing”.

Conservative Party leader Kemi Badenoch said Ms Reeves had offered a “laundry list of excuses”.

Mrs Badenoch added: “She blamed everybody else for her own choices, her own decisions, her own failures.”

Reform UK’s deputy leader 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.”

For the Liberal Democrats, Daisy Cooper said the speech was “pointless”.

The FTSE 100 dropped nearly 100 points in the wake of Ms Reeves’s speech, although it recovered some of its losses during the day.