Brits have been put on high alert for tax hikes as Rachel Reeves prepares to claim there is a £20billion hole in the public finances.
The Chancellor is poised to give a dire assessment of the government’s books in a crucial intervention on Monday.
Despite inflation subsiding and signs the economy is performing better, Ms Reeves will blame the Tories for underfunding the NHS, prisons, schools and the asylum system.
She has been heavily hinting that Labour needs more revenue to make ends meet, with fears that inheritance tax, capital gains and council tax could be among the targets.
Some £19billion in ‘excess pressures’ has apparently been identified for this year – partly due to Labour‘s decision to approve inflation-busting public sector wage increases.
Rachel Reeves (seen earlier this month) is set to reveal a staggering deficit in the public finances of up to £20billion, working up to a significant tax hike this autumn
The Chancellor is expected to implement tax increases up to £25bn this autumn to address the fiscal gap, despite Sir Keir Starmer’s election campaign pledges against raising income tax, national insurance or VAT
The audit’s findings will be presented in Parliament next Monday, with Ms Reeves announcing her first Budget date. Details of tax rises are not due until then.
Her update will reveal ‘the true scale of the damage the Conservatives have done to the public finances’, a Labour source said.
But shadow chancellor Jeremy Hunt said: ‘Labour’s claims are nothing but a fabrication – the books have been wide open since the OBR was set up 14 years ago. They show an economy that has turned the corner and a deficit one-third of that left behind by Labour – and not this nonsense the Chancellor is peddling.
‘The reality is she does not want to take the difficult decisions on pay, productivity or welfare reform that would have meant we could live within our means and is laying the ground for tax rises.
‘After Labour promised 50 times not to do this, they will find trust in the new government evaporates sooner than they expect.’
Speaking to broadcasters on Friday morning, Mr Streeting said Labour had discovered the state of the public finances was ‘shocking’ since entering Government.
‘We knew that the economic inheritance would be the worst since the Second World War. That’s why ahead of the General Election we were so disciplined about our manifesto to make sure the promises we made would be promises we would keep and the country could afford,’ he told Times Radio.
‘What I think we have found shocking is the state of the public finances in the year that we’ve inherited and that means tough choices … as the Chancellor, (Rachel Reeves) will continue to show iron discipline and she will have the full support of the entire Cabinet.
‘Because these aren’t just tough choices for the Chancellor, these are tough choices for all of us and we’re determined to meet that challenge, to be honest with people, to not duck the difficult decisions and to make sure that we make the right choices now that set Britain up for the longer-term success that we need.’
The £20 billion figure could still shift as each department’s spending commitments are assessed before Ms Reeves’ Commons statement.
Any tax hikes to plug the shortfall in spending for essential public services are not expected before the autumn budget, the date of which Ms Reeves is also set to announce on Monday.
The Chancellor is expected to implement tax increases up to £25billion this autumn to address the fiscal gap, despite Labour’s election campaign pledges against raising income tax, national insurance or VAT.
Concerns are also growing over potential raids on pensions or inheritance tax reliefs.
Businesses and individuals alike are bracing for the impact.
Ms Reeves said last week that she was ready to approve pay rises of up to 5.5 per cent for millions of public sector workers, despite inflation being at two per cent.
The proposed pay increases to state employees like nurses and teachers could cost about £3.5 billion more than had been budgeted.
Speaking at a meeting of G20 finance ministers in Brazil, Ms Reeves said: ‘I have always been honest about the scale of the challenge we face as an incoming Government, and let me be crystal clear: we will fix the mess we have inherited.’