Chancellor planning to unveil £50billion in tax rises, insiders warn

Tax rises and spending cuts in this month’s Budget could total £50billion – double the figure previously thought.

Whitehall sources said Chancellor Rachel Reeves is preparing to unveil measures far in excess of the £25billion tax rises suggested by the Institute for Fiscal Studies (IFS) last week.

Insiders said the final figure is likely to top £40billion and could even hit £50billion – bigger than the £45billion in tax cuts unveiled by Liz Truss in her disastrous mini-Budget in 2022.

Sir Keir Starmer yesterday warned the Budget on October 30 will be ‘tough’. And in an interview with the New Statesman magazine, the Chancellor suggested the IFS had underestimated the scale of the challenge facing the public finances.

In a major report, the think-tank said tax rises totalling £25billion would be needed to prevent real-terms cuts to public spending.

Whitehall sources said Rachel Reeves is preparing to unveil measures far beyond IFS advice

But Ms Reeves said the study had not taken into account unfunded pressures like the millions spent housing asylum seekers in hotels, billions more given to Ukraine and potentially huge sums to compensate victims of the Post Office and infected blood scandals.

Asked whether she might have to raise £50billion, she replied: ‘There’s a big gap and we’ll have to set it all out in the Budget. 

‘But I don’t think this comes as any surprise to the British people.

‘They know that the previous government were covering up the scale of the challenges. That’s why they voted them out.’

Whitehall sources said Ms Reeves was also determined to restore a buffer of so-called ‘fiscal headroom’ to ensure she does not break her self-imposed borrowing rules if economic conditions worsen.

The Treasury declined to comment in detail ahead of the Budget. But government insiders said that, with Ms Reeves committed to avoiding a return to austerity, the bulk of the money would have to be raised from tax rises rather than spending cuts and welfare savings. 

Sir Keir Starmer (left, with Reeves) yesterday warned the Budget on October 30 will be ‘tough’

The warnings came as Sir Keir again left the door open to raising employers’ national insurance (NI) – and insisted it would not break Labour’s manifesto pledge.

In an interview with the BBC, he said a manifesto pledge not to increase NI applied only to ‘working people’, not their employers.

At a meeting of the Cabinet yesterday the Prime Minister told ministers the Government would take ‘tough decisions so we can invest in the future’.

Meanwhile, the Conservatives highlighted the Chancellor’s previous warnings about the danger of raising employers’ NI contributions when the Conservative government considered the move.

Shadow Treasury minister Laura Trott said: ‘In 2021, the Chancellor said increasing employer national insurance was a tax on “workers”.’