At a glance
• Ahead of the November 26 Budget, the Chancellor warned in a speech on Tuesday morning that “people must understand the circumstances we are facing,” signalling that higher taxes are likely due to the UK’s weak public finances.
• Reeves pledged that her Budget will be “fair,” prioritising reducing NHS waiting lists, tackling the cost of living, and cutting national debt, while protecting those on modest incomes.
• A £20 billion shortfall in forecasts from the Office for Budget Responsibility—blamed partly on Brexit and the financial crisis—has forced Reeves to consider significant tax rises to rebuild fiscal “headroom.”
Rachel Reeves has given the clearest sign yet that she will break Labour’s manifesto promise not to raise taxes on workers.
During a pre-Budget speech in Downing Street, the Chancellor put Britain on notice for some hefty tax rises by warning of the importance that “people understand the circumstances we are facing”.
Ahead of her November 26 statement, Ms Reeves addressed the challenges facing the UK economy, but vowed there would be no return of austerity for public services.
With the public finances in a dire state, the Chancellor prepared the nation to be hit with higher levies.
Despite the UK's "considerable economic strengths" it had been hit by a series of global challenges and persistent problems with productivity, Ms Reeves said.
She added "the world has thrown even more challenges our way" in the last 12 months.
"The continual threat of tariffs has dragged on global confidence, deterring business investment and dampening growth," she told reporters in Downing Street.
"Inflation has been too slow to come down, as supply chains continue to be volatile, meaning the costs of everyday essentials remain too high.
"And the cost of government borrowing has increased around the world, a shift that Britain, with our high levels of debt left by the previous government, has been particularly exposed to."
In a hint that tax increases are likely at the Budget, Ms Reeves made clear that "we will all have to contribute" to repairing the public finances.
If she does rip up the manifesto and increases the basic rate of income tax, she would be the first Chancellor to do so for 50 years.
"As I take my decisions on both tax and spend, I will do what is necessary to protect families from high inflation and interest rates, to protect our public services from a return to austerity and to ensure that the economy that we hand down to future generations is secure with debt under control,” she said.
"If we are to build the future of Britain together, we will all have to contribute to that effort. Each of us must do our bit for the security of our country and the brightness of its future.”
Ms Reeves gave a clear indication that she would be breaking Labour’s manifesto promise not to raise levies on “working people”.
“The easy thing to do would be to cut investment in housing, to cut investment in energy security, to cut investment in our transport infrastructure,” she said.
“The reason we have such low productivity today, and the reason why the the [Office for Budget Responsibility] are updating their forecasts is because governments have done that for the last 14 years, and that's why we face so many of the challenges we face today.
“And I'm not going to be a Chancellor like that. I am going to put the country first, I'm going to put the national interest first.”
After the controversy of her first Budget last year, when she significantly raised National Insurance contributions for employers and imposed tax rises of £40 billion partly to better fund the NHS and other public services, the Chancellor insisted her next Budget would not be on a similar scale in terms of higher levies.
However, she appeared to be rolling the pitch for some sizeable tax rises later this month after the fiscal watchdog, the Office for Budget Responsibility, blew an estimated £20 billion hole in her blueprint for Britain by cutting the nation’s productivity forecasts.
Ms Reeves has blamed the OBR’s downgrade partly on Brexit and the financial crisis.
She also wants a bigger economic cushion, or “fiscal headroom,” than the current £10 billion which is so small that her plans for the country can easily be derailed by a financial shock.
Sir Keir Starmer has not ruled out a manifesto-busting increase in income tax of 1p or 2p in the Pound, possibly affecting higher rate income tax payers but not those just paying the basic rate.
This could be partially offset by cuts to employee National Insurance contributions.
With the NHS already ailing before winter pressures hit, many households struggling to make ends meet and the UK spending tens of billions on servicing the nation’s debts, Ms Reeves vowed to cut hospital waiting lists, the cost of living and the national debt.
Her speech from Downing Street comes a day after her Cabinet colleague, Transport Secretary Heidi Alexander, gave an insight into her thinking, particularly in terms of wanting to protect people on “modest incomes”.
Ms Reeves has also ruled out growth-busting tax rises for businesses after the criticism she faced over the increase in NI contributions for firms which was widely blamed for causing economic harm to the UK.
Given the scale of the expected tax rises, millions of people on middle incomes are expected to face higher levies, as well as the wealthy.
Possible measures are said to include higher council tax bands for expensive properties, a mansion tax for homes worth more than £2 million, a further freeze on income tax thresholds, reducing relief on pension contributions, higher levies on unearned income such as shares and rent for landlords, and increased tax on accountants and lawyers who who use limited liability partnerships.
Many of these options could hit London and the South East particularly hard, given that many people in these areas earn more than those in other regions, though the cost of living is also higher.
Kemi Badenoch said Ms Reeves had offered a "laundry list of excuses".
The Conservative Party leader added: "She blamed everybody else for her own choices, her own decisions, her own failures."
Reform UK's deputy leader Richard Tice said: "Rachel Reeves has today confirmed what we all knew - she's going to hammer working people with even more tax rises.
"Instead of cutting waste and spending, deregulating and optimising for growth, we are just getting more of the same."
Liberal Democrat Daisy Cooper described the speech as "pointless".
