Brexit and austerity still causing ‘major problems’ for economy – Phillipson

The chaos of Brexit and years of austerity are to blame for the tax rises Rachel Reeves is expected to announce at the Budget, a Cabinet minister said.

Education Secretary Bridget Phillipson insisted the Government takes its manifesto commitments seriously despite expectations at Westminster that the Chancellor will rip up the promises made to voters over tax hikes.

The National Institute of Economic and Social Research, a major economic think tank, said the Chancellor must plug a £50 billion black hole in the nation’s public finances and give herself a larger fiscal headroom.

It suggested a 2p rise in income tax was likely to be needed to address the hole, echoing a similar suggestion by the Resolution Foundation, another think tank which has been influential upon the Government’s thinking.

Ms Reeves would become the first chancellor in half a century to increase the basic rate of income tax if she follows that suggestion when she delivers her November 26 Budget.

Speculation that she will take that step, which would mean ditching Labour’s manifesto commitment not to increase income tax, national insurance or VAT, was heightened when she delivered a speech on Tuesday saying that “each of us must do our bit”.

An expected downgrade in forecasts of productivity from the Office for Budget Responsibility (OBR) will add to Ms Reeves’ headaches because it will suggest lower economic growth and tax receipts.

Ms Phillipson told the BBC: “Where it comes to our manifesto, of course, we take the commitments we made seriously.

“And as the Chancellor was saying yesterday, we know that there are some big challenges in the economy.

“We’ve made lots of changes already that are putting things on a more stable footing.

“That’s why we’ve seen interest rate cuts, we’ve seen growth being the fastest in the G7 in the first half of the year.

“But there are some big global factors that remain a challenge, and that’s why we will do what’s right, what’s necessary, both for the public but also for the long-term future of our economy.”

She added that the OBR will show “the damage of the chaotic Brexit we saw, the damage of years and years of austerity was even more serious than we anticipated”.

Ms Phillipson added: “Unfortunately, that is causing major problems in terms of our economy and that’s where we are at the moment, I’m afraid to say.”

Elsewhere, The Times reported some senior figures within the Government are unhappy with the Chancellor’s plans.

“Breaking the manifesto will mean we lose some voters forever,” said an unnamed minister quoted in the newspaper.

Shadow chancellor Sir Mel Stride meanwhile suggested his counterpart must stand down if she goes ahead with tax rises.

The senior Tory said: “This is about choices. If Rachel Reeves breaks her word and raises taxes again, she must go.

“A responsible chancellor would get a grip on spending – including the welfare bill – not reach for yet another tax rise.”

But the Chancellor insisted on LBC’s Tonight With Andrew Marr that she would not take such a step.

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