Rachel Reeves today gave her strongest indication yet that she will smash Labour’s promises on tax despite a mounting revolt.
The Chancellor suggested the only way she could keep the promises not to increase income tax, national insurance or VAT was to cut investment – something she has ruled out.
In an interview on BBC Radio 5 Live, Ms Reeves argued that the government’s fiscal situation was ‘significantly worse’ than when the manifesto was drawn up.
However, pushed that she appeared to be confirming an income tax increase is coming, Ms Reeves did stress that final decisions have not yet been taken.
She also all-but declared that the two-child benefit cap will be scrapped, saying families should not be worse off because they had more children.
It would be the first increase in the rate since 1975, as Ms Reeves struggles to fill a black hole in the finances estimated at between £20billion and £40billion.
But Labour MPs are increasingly alarmed at the strong hints from the Treasury – which is due to receive the first costings of draft policies from the OBR watchdog today.
Ms Reeves told presenter Matt Chorley: ‘I will set out the choices in the Budget.
‘It would, of course be possible to stick with the manifesto commitments, but that would require things like deep cuts in capital spending and the reason why our productivity and our growth has been so poor these last few years is because governments have always taken the easy option to cut investment – in rail and road projects, in energy projects, in digital infrastructure.
‘And as a result, we’ve never managed to get our productivity back to where it was before the financial crisis.
‘So we’ve always got choices to make, and what I promised during the election campaign was to bring stability back to our economy, and what I can promise now is I will always do what I think is right for our country.’
She added: ‘We’re still going through the process at the moment of preparing the Budget measures. So those final decisions haven’t been taken yet, but as I take those measures, I will do what I believe is right for our country, and sometimes that means not always making the easy decisions, but the decisions that I think are in our national interest.’
Former minister Cat West told the BBC’s Westminster Hour that breaking the manifesto could be as catastrophic for Labour as the tuition fees backtrack was for the Lib Dems in 2015.
Cabinet ministers have also been privately voicing concerns about the fallout should Ms Reeves and Keir Starmer choose the option.
Labour’s recently-installed deputy leader Lucy Powell insisted last week that it was ‘really important’ to stick to the promises.
Left-wing Labour MPs have been pushing for Ms Reeves to rinse the ‘wealthy’, despite fears that could deal another devastating blow to hopes of getting the economy growing faster.
The Chancellor again sought to blame the Tories, Brexit, Donald Trump and the Ukraine war for the country’s woes today.
‘I have been really clear that we are looking at both taxes and spending as part of this Budget, a couple of things have influenced the budget situation this year,’ she said.
‘The first is that the independent forecaster, the Office for Budget Responsibility, has done a review of how productive the economy is. They’ll be very clear this is based on our productivity performance of the last few years under the last government, but they’re using it to make projections about productivity in the future, and that does mean lower growth, and we have to accommodate that, because we have to live within our means.’
Ongoing ‘conflicts and disruptions to trade’ were hitting growth around the world, she added.
On the two-child benefit cap, Ms Reeves strongly suggested that it will be axed altogether – rather than merely loosened as many have speculated.
That would cost the taxpayer around £3billion a year.
‘I don’t think we can lose sight of the costs to our economy in allowing child poverty to go unchecked,’ she said.
‘And, in the end, a child should not be penalised because their parents don’t have very much money.
‘Now in many cases you might have a mum and dad who were both in work, but perhaps one of them has developed a chronic illness. Perhaps one of them has passed away.
‘There are plenty of reasons why people make decisions to have three, four children, but then find themselves in difficult times…
‘And I don’t think that it’s right that a child is penalised because they are in a bigger family through no fault of their own.
‘And so we will take action on child poverty.’
Ms West said last night: ‘If I were Rachel, I think I wouldn’t be breaking the manifesto promise.
‘I just think back to the Liberal Democrats and the university fees, because that was, you know, the big one for me that I remember and was very important for me.
‘That’s how I won my seat, because I won that from the Liberal Democrats. So I think those big ones, they do come back to haunt you.’
Rumours have been swirling about a range of eye-watering ways in which Ms Reeves could seek to raise more revenue.
They include raids on ‘mansions’, pensions and savings.
In a rare pre-Budget speech last week, Ms Reeves admitted that everyone will have to ‘contribute’ to stabilising the government’s finances.
She insisted ‘we will all have to contribute’ to closing the gap, reeling off a laundry list of factors to blame – including Brexit, the Tories, Covid, the Ukraine war and President Trump’s tariffs.
Such a move would be a blatant breach of Labour’s manifesto pledge to not raise income tax, National Insurance or VAT – and triggered Tory calls for her to be sacked.
But Ms Reeves said she was ‘not going to walk away because the situation is difficult’.
Left-wingers have demanded the Chancellor spares the ‘working class’.
