RACHEL Reeves is reportedly planning to hike taxes and stick with Tory spending cuts as economic growth fails to ease pressure on the public finances.
The Chancellor is said to be considering sticking to Conservative plans to increase public spending by just 1%, which would result in real-terms cuts in some departments.
And she is said to be mulling increases to capital gains tax and inheritance tax – despite pre-election promises not to raise tax on “working people”.
Referencing the plans, Professor Richard Murphy said they amounted to "full blown austerity". "Hitting the poorest hardest, then. Some Labour Party," he added.
It comes as borrowing levels reached unexpected highs last month. Government debt reached £3.1 billion in July, exceeding experts’ predictions, The Guardian reports.
The deficit last month was the highest for July in three years and £3bn more than predicted by the Government’s spending watchdog, the Office for Budget Responsibility (OBR).
Reeves (above) has already announced that universal Winter Fuel Payments will be scrapped, as will plans for social care reform and investment in roads, railways and hospitals in a bid to bring down borrowing.
A source told The Guardian: “We don’t accept the positive economic inheritance line, given the decade that went before – but regardless, nothing in the recent data can offset the scale of the black hole in the public finances we’re looking at.”
Reeves is also reportedly considering changing the way debt is measured to exclude the Bank of England.
Research published on Wednesday by the House of Commons Library showed that Government debt at the end of last month was equivalent to 99.4% of GDP, a measure of the economy. That figure falls to 91.9% of GDP if the Bank of England’s debt is removed.
Labour have repeatedly claimed to have received the worst economic inheritance from the last Government since the Second World War – but the Conservatives have denied this, pointing to a growing economy, low unemployment and a steadying rate of inflation.
The party also repeatedly claimed during the election that the best way to improve public services was to encourage economic growth – something their critics may now question given that Britain had the fastest-growing economy in the G7 in the first half of this year.
The Treasury has argued this growth merely made up for a poor performance last year, including a period when the economy was technically in a recession, according to The Guardian.
Reeves will receive the OBR’s assessment of the state of the economy at the start of next month, ahead of the Autumn Statement at the end of October.
Figures from the Office for National Statistics last month showed that borrowing in the first three months of this financial year stood at £49.8bn, which is £3.2bn more than the OBR had anticipated.
Government spending in the period was £297.3bn, up £4.6bn on the same quarter last year, a rise the Treasury attributes to growing departmental spending and welfare payments.
