Rachel Reeves has refused to rule out tax rises in this month’s Budget.
In an unusual pre-Budget news conference in Downing Street, the Chancellor hinted that she would break a Labour election manifesto commitment not to increase income tax, VAT or national insurance.
Against the backdrop of an estimated £20-30 billion shortfall in the public finances – with The Office for Budget Responsibility set to downgrade the UK’s productivity forecast – Reeves said the country was in a worse state financially than they had expected after “years of [Conservative] economic mismanagement”.
“If we have to build the future of Britain together, we will all have to contribute to that effort,” she told reporters.
“As Chancellor, I have to face the world as it is, not the world that I want it to be. And when challenges come our way, the only question is how to respond to them, not whether to respond, or not.”
Last year’s Budget was the biggest tax-raising fiscal event since 1993 but Reeves highlighted worsening global economic factors including global tariffs, volatile supply chains and increased defence spending as she seemed to prepare the country for an unexpected tax hit.
The UK currently has £2.6 trillion of national debt, which is 94% of its GDP.
“I put our public finances back on a firm footing, provided an urgent cash injection into faltering public services and began rebuilding our economy,” Reeves said. “But since that Budget, the world has thrown even more challenges our way.
“I could do what previous governments have done, which is to sweep those challenges under the carpet, to cut capital spending, to make the numbers up.
“But then we’d be back here in a year, in five years’ time, with productivity still on its knees, growth underperforming, national debt continuing to rise. So I’m being honest with people.
“The problem of the last 14 years is that political expediency always came above the national interest. And that is why we are in the mess that we are in today.”
She added: “No accounting trick can change the basic fact that government debt is sold on financial markets. The more that we try to sell, the more it will cost us.
“It is important that everyone, the public and politicians understand that reality.”
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Tory leader Kemi Badenoch said the Chancellor has overseen “a masterclass in managed decline”, adding: “It is utterly ridiculous to see Rachel Reeves stand there blaming everybody except herself.
“If she had a plan, she would be talking about what she was going to do other than tax rises. All she’s doing is blaming everyone else.
“This is a Chancellor who’s back against the wall. She doesn’t know what she’s doing.”
Conservative Shadow Chancellor Sir Mel Stride wrote on X: “The Chancellor claims she fixed the public finances last year. If that was true, she would not be rolling the pitch for more tax rises and broken promises.
“The reality is, she fiddled the fiscal rules so she could borrow hundreds of billions more.
“Every time the numbers don’t add up, Reeves blames someone else. But this is about choices – and she made all the wrong ones. If Rachel Reeves had the backbone to get control of government spending – including the welfare bill – she wouldn’t need to raise taxes.”
Reeves said the Tories’ plan for £47bn in cuts would have “devastating consequences for our public services”.