Reeves admits she’s looking at tax rises and spending cuts in Budget

Rachel Reeves has admitted she is looking at tax rises and spending cuts to fill a massive financial black hole in her Budget.

Asked about the state of the UK economy as she prepares to deliver her statement in November, the Chancellor said “of course, we’re looking at tax and spending”.

Ms Reeves was speaking before heading to the United States for a meeting of the International Monetary Fund (IMF).

The IMF has warned inflation in the UK is set to surge to the highest in the G7 group of developed democracies in 2025 and 2026.

And it increased its UK economic growth forecast for this year, but reduced its assessment for 2026 amid concerns over the labour market.

Britain is set to be the second fastest growing G7 country this year, the IMF also said, with only the US growing faster.

Asked about tax hikes in her Budget, the chancellor pinned the blame on Brexit, which she said has had a “severe and long lasting” impact on the economy.

She is the latest top Labour figure to speak out publicly on the impacts of Brexit, after years in which the party feared being accused of betraying the result of the EU referendum if it was too overtly critical.

Sir Keir Starmer has linked Brexit to the small boats crisis in the English Channel, branding the dinghies landing in Dover “Farage boats” due to the loss of a deal which allowed nations to send refugees back to the countries whence they first claimed asylum.

Health secretary Wes Streeting meanwhile said there is “no doubt” Brexit has held back the economy since 2016, and he is “glad that Brexit is a problem whose name we now dare speak”.

Asked about reports the UK’s spending watchdog has increased the scale of the gap Ms Reeves will have to plug, she told Sky News “they have consistently overestimated our productivity performance”.

And, asked whether it was because of Brexit, Ms Reeves said: “It would be up to them (the Office for Budget Responsibility) to set that out. But austerity, Brexit, and the ongoing impact of Liz Truss's mini-budget, all of those things have weighed heavily on the UK economy.

“People thought that the UK economy would be 4 per cent smaller because of Brexit.

Ms Reeves said Sir Keir’s government is working to undo the damage of Brexit, striking a youth mobility scheme with the EU and an agreement on the sale of goods across its borders.

But she added: “There is no doubting that the impact of Brexit is severe and long lasting and that's why we are trying to do trade deals around the world, US, India, but most importantly with the EU so that our exporters here in Britain have a chance to sell things made here all around the world.”

It comes after the chancellor was warned the situation she faces before November’s Budget is “desperate”.

The chancellor is facing a black hole of up to £50bn and is widely expected to hike levies next month, but she has been told she cannot afford to tinker at the margins “by picking from a Scrabble bag” of smaller tax increases.

Leading tax expert Dan Neidle, the founder of Tax Policy Associates, said the “wise” way for Ms Reeves to increase taxes would be “raising one of the main taxes, possibly by expanding the base of VAT, which may or may not break a manifesto pledge”.

Labour on Wednesday was promising it stood by a pledge not to hike VAT, income tax or national insurance payments, which it made before the general election.

Ms Reeves confirmed she will look at a range of “tax and spending” measures in the Budget, suggesting public services could also face cuts.

She blamed “challenges being thrown our way, whether that is the geopolitical uncertainties, the conflicts around the world, the increased tariffs and barriers to trade”.

But shadow chancellor Sir Mel Stride said: "Rachel Reeves doesn't need to raise taxes. She needs to get a grip of Government spending - including the welfare bill.

"Be in no doubt, this tax doom loop is down to the Chancellor's economic mismanagement.

"Under Rachel Reeves we have seen inflation double, debt balloon, borrowing costs at a 27-year high, and taxes up - with more pain on the way in the autumn."