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Taxes will have to rise in October to plug a £22bn hole in the public finances, Rachel Reeves has warned.
Ahead of her first budget, the chancellor refused to rule out hiking capital gains and inheritance tax and pursuing pension reform to fill the gap.
And, setting the scene for a brutal financial statement, she said: “I think that we will have to increase taxes in the budget.”
The warning comes after she scrapped a series of infrastructure projects and announced the winter fuel allowance for pensioners would be means-tested in a bid to address the black hole left by the Conservatives.
Ms Reeves did not say which taxes would rise, but told the News Agents podcast that Labour would stick to its manifesto pledge not to hike national insurance, VAT or income tax.
She said: “We had in our manifesto a commitment to fiscal rules to balance day-to-day spending through tax receipts, and by the end of the forecast period, to get debt down as a share of GDP.
“Those are sensible fiscal rules to keep a grip of the public finances. We also made other commitments in our manifesto, not to increase national insurance, VAT or income tax for the duration and we’ll stick with those.”
Pressed again about which taxes could go up, she added: “We will have a budget on October 30 and ahead of that budget, we will have a forecast by the Office for Budget Responsibility (OBR) on this occasion, based on accurate numbers.”
On Monday Ms Reeves shocked MPs as she said she will remove winter fuel allowance payments for pensioners from almost 7m of the households that currently receive them.
Ms Reeves also cancelled the plan to introduce the Dilnot Commission recommendations on social care for the elderly next year, meaning that people will still have to sell their homes to pay for residential care.
Announcing a series of cuts, a sombre-looking Ms Reeves repeated: “If we cannot afford it, we cannot do it.”
She accused the previous government of a “cover-up” of the state of the nation’s finances, and also took the axe to Rishi Sunak’s legacy, scrapping his Advanced British Standard qualification – saving £260m in the process – and his plans to reopen railways, to be paid for out of High Speed 2 savings.
But even with £5.5bn of cuts announced for 2024/25, and another £8.1bn for the following year, Ms Reeves warned that there would be worse to come in her Budget on 30 October.
She said: “I have to tell the House that the Budget will involve taking difficult decisions to meet our fiscal rules across spending, welfare and tax.”
The Conservatives accused Ms Reeves of making up the numbers to provide cover for tax cuts she had been planning all along.
On the podcast, Ms Reeves was challenged over whether her warnings amounted to a return to the austerity programme pushed by George Osborne. “That’s just not true,” she said.
“This is not a return to austerity, it is getting a grip of the public finances, and there is nothing progressive about losing control of the economy because we saw what happened when the previous government lost control of the economy,” Ms Reeves added.
Seizing on the chancellor’s warning, her predecessor and shadow chancellor Jeremy Hunt said: “They had a choice and they have chosen to raise your taxes.
"Instead of taking the difficult decisions needed to reform welfare, increase productivity and stand up to Labour’s union paymasters - the Chancellor will raise taxes right across the country.
"Just as we warned - they were always planning to do this, they just didn’t have the courage to be honest about it".
