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Chancellor Rachel Reeves has admitted she cannot rule out further tax rises this autumn as she grapples with a deepening black hole in the nation’s finances. In a dramatic week for the government, Ms Reeves became visibly upset on the front bench during Prime Minister’s Questions on Wednesday, following what she described as a “tough day in the office”.
Speaking to the Guardian: “It was a personal matter but it was in the glare of the camera. And that’s unfortunate, but I think people have seen that I’m back in business and back out there.”
But while the Chancellor insisted she has no intention of quitting – “I didn’t work that hard to then quit” – she admitted it had been a “damaging” week in government after a mass rebellion forced ministers to scrap flagship welfare reforms, blowing a £5billion hole in the Budget.
That shortfall, combined with slowing growth and costly commitments, means the Chancellor may be forced to break Labour’s manifesto promise not to raise income tax, national insurance or VAT – a move that could hit millions of middle-income households.
Asked directly if she could rule out tax rises, Ms Reeves replied: “I’m not going to, because it would be irresponsible for a chancellor to do that… But there are costs to what happened.”
She added: “I’m not going to apologise for making sure the numbers add up. But we do need to make sure that we’re telling a story, and a Labour story.”
At Tuesday’s cabinet meeting, the Chancellor warned ministers that the £40billion tax package she imposed last November – including a £24billion hike in employers’ National Insurance – had already used up the “low-hanging fruit”.
Any tax rises in the next Budget, expected in the autumn, would now be “a big challenge”, she said. Paul Johnson of the Institute for Fiscal Studies said the government could be facing a funding gap of up to £30billion. He warned: “I can’t see a way in which she raises that kind of money without hitting people on middle incomes… as they did with the national insurance increase.”
One option believed to be back under discussion is taxing pension pots, a measure previously rejected, as well as revisiting capital gains tax and allowances on investment income.
The Chancellor is also under pressure from within Labour to soften the party’s rigid fiscal rules – or change the remit of the Office for Budget Responsibility.
Ms Reeves insisted the Treasury will “continue to keep that grip on the public finances” and said that bringing the country along with her ahead of the next budget was critical. “As we move into the budget for the autumn, I do want to bring people into those trade-offs,” she said.
A U-turn on plans to overhaul disability benefits followed a revolt led by backbenchers and disability rights campaigners. Labour veteran Stephen Timms is now leading a review into reforming the Personal Independence Payment system.
The Chancellor said: “It’s been damaging. I’m not going to deny that… But that’s the right thing to do. It is important that we listen in government, that we listen to our colleagues and listen to what groups outside are saying as well.”
Speculation mounted over her position after her Commons tears were caught on camera, with reports she had told the Speaker she was under “so much pressure”. The footage spooked financial markets, briefly pushing up government borrowing costs amid fears she might be sacked.
While Sir Keir Starmer failed to offer a public show of support during PMQs, he later insisted she would remain his Chancellor “for years to come”.
In the clearest sign yet that painful decisions are ahead, Ms Reeves warned colleagues: “We’ll never have to do something like (Liz Truss’s mini-Budget) again… but there are costs to what happened.”
Now, with economic storm clouds gathering and the political pressure mounting, all eyes will be on how the Chancellor squares Labour’s promises with the hard fiscal reality – without breaking the fragile trust of voters already struggling with the cost of living.
