Tax rises are on their way within months, Rachel Reeves has signalled, saying: “I think that we will have to increase taxes in the Budget”.
The Chancellor made the statement just over three weeks after Labour won a landslide election victory on July 4.
“I think that we will have to increase taxes in The Budget,” she told The News Agents podcast.
Her comments came amid a furious bust-up with her predecessor Jeremy Hunt.
She accused him on Tuesday of “lying” about the true scale of the public finances crisis ahead of the election.
But he hit back, claiming it was in fact Labour which had not been honest with voters about its plans to raise taxes.
Ms Reeves on Monday announced the axing of winter fuel payments for pensioners not on benefits as part of sweeping reforms which she claimed were needed to fill a £22 billion black hole in Britain’s public finances.
She announced that the Budget would be on October 30 and would involve “difficult decisions” on tax, spending and welfare.
The BBC reported that ten million pensioners would now lose out on the winter fuel payment.
Responding to Ms Reeves’ statement, the Tories on Monday immediately accused her of paving the way for tax hikes in the autumn despite her pre-election promises which they claimed would be the “biggest betrayal in history” by a new Chancellor.
Ms Reeves accused the past Tory administration of “covering up from the country” the full scale of the public finances crisis
She said there was a “£22 billion hole in the public finances now, not in the future, but now”.
The projected overspend by the previous Tory government on the asylum system, including the “failed” Rwanda plan, was more than £6.4 billion for this year alone, she alleged.
She added that there was £1.6 billion unfunded for Britain’s rail network, and accused Rishi Sunak’s government of not putting aside enough funds to meet its pledge of aid for Ukraine, which she stressed the new Government would honour.
She told MPs: “The Government published its plans for day-to-day spending in the spring budget in March.
“But when I arrived in the Treasury, on the very first day I was alerted by officials that this was not how much the previous government expected to spend this year - it wasn’t even close.
“In fact, the total pressures on these budgets across a range of areas was an additional £35 billion.
“Once you account for the slippage in budgets you usually see over a year and the reserve of £9 billion designed to respond to genuinely unexpected events, it means that we have inherited a projected overspend of £22 billion.
“A £22 billion hole in the public finances now, not in the future, but now - £22 billion of spending this year that was covered up by the party opposite. If left unaddressed it’d mean a 25 per cent increase in the budget deficit this year.”
She told the Commons that she is now taking the “difficult decision” that those not in receipt of pension credit or certain other means-tested benefits will no longer receive the winter fuel payment from this year onwards.
The Chancellor added: “The Government will continue to provide winter fuel payments worth £200 to households receiving pension credit or £300 to households in receipt of pension credit with someone over the age of 80.
“Let me be clear, this is not a decision I wanted to make, nor is it the one I expected to make - but these are the necessary and urgent decisions that I must make."
The Government’s website states, before the announcement on Monday: “If you were born before 25 September 1957 you could get between £250 and £600 to help you pay your heating bills. This is known as a ‘Winter Fuel Payment’.
“The amount you get includes a ‘Pensioner Cost of Living Payment’. This is between £150 and £300. You’ll get this extra amount in winter 2023 to 2024. This is in addition to any other Cost of Living Payments you get with your benefit or tax credits.”
Ms Reeves ruled out before the election increasing VAT, income tax and National Insurance, and on Monday rejected calls for a wealth tax, but her stance leaves open hiking levies particularly hitting the wealthy including inheritance tax and capital gains tax.
Government departments will have to find savings of at least £3 billion to help fund public sector pay rises costing £9 billion this year – including by stopping non-essential spending on consultancy and communications, Ms Reeves told the Commons.
On the previous government's commitment to 40 new hospitals, including several in London, Ms Reeves said: "Only one new project has opened to patients and only six have started their main construction activity."
She added previous government gave people "false hope" on the projects, adding in the Commons: "We will conduct a complete review of the hospital programme, with a thorough, realistic and costed timetable for delivery."
The Treasury spending audit has revealed "£1 billion of unfunded transport projects" committed to next year, with Transport Secretary Louise Haigh set to undertake a "thorough" review of them.
Ms Reeves said: "As part of that work, she has agreed not to move forward with projects the previous government refused to publicly cancel despite knowing full well that they were unaffordable. That includes proposed work on the A303 and the A27.
"(Ms Haigh) will also cancel the Restoring Our Railway Programme, saving £85 million next year, with individual projects to be assessed through her review."
On the retail sale of NatWest shares, Ms Reeves said: "We intend to fully exit our shareholding in NatWest by 2025/26. But, having considered advice, I have concluded that a retail share sale offer would involve significant discounts that could cost taxpayers hundreds of millions of pounds.
"It would therefore not represent value for money and it will not go ahead."
Adult social care charging reforms delayed by the Tories will not be taken forward, saving more than £1 billion by the end of next year.
The Government would not proceed with the Advanced British Standard qualification, to replace A-Levels, saying the commitment would cost "nearly £200 million next year, rising to billions across future years".
Millions of public sector workers will get inflation-busting pay rises.
But Shadow Chancellor Jeremy Hunt said a £20billion “blackhole has not just emerged” and Ms Reeves argument is "not credible and won'twash".
This is a "shameless" attempt to "lay the ground for tax rises", he told the Commons.
He added: "She says the information is new. But she herself told the Financial Times 'you don't need to win an election to find out the state of public finances that we have got because the OBR'."
Labour will appoint a Covid corruption commissioner, establish a new office of value for money, and that from the autumn spending reviews will take place every two years with a three-year planning horizon “to avoid uncertainty for departments and to bring stability to our public finances”.
