Rachel Reeves says wealth tax hike 'part of the story' in autumn budget as she seeks to plug £50bn black hole

The Chancellor acknowledged she was looking at potential tax rises and spending cuts to plug gaps in her autumn budget, which she said had appeared due to the lingering impact of Brexit.

Ms Reeves announced tax rises worth £40 billion a year at her first budget last November, including hikes to payroll taxes paid by employers, and insisted she would not repeat such rises in subsequent years.

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But with no boom in economic growth, stubbornly high inflation and the mounting costs of government debt, some economists believe Ms Reeves will have to raise another £50 billion in the November 26 statement.

She also said there had been scaremongering over her decisions that hit the pockets of the wealthy as she all but confirmed a tax hike for the rich during a trip to Washington for the International Monetary Fund (IMF) meeting.

"Last year, when we announced things like the non-doms, like the (tax increase for) private equity, like the VAT on private school fees, there was so much bleating that it wasn’t going to raise the money – that people would leave," Ms Reeves said.

"The Office for Budget Responsibility will publish updated numbers on all of those things. And that scaremongering didn’t pay off, because this is a brilliant country and people want to live here."

Before the Chancellor departed for the US, she told Sky News that “of course, we’re looking at tax and spending”.

Ms Reeves also confirmed the budget watchdog had “consistently overestimated” the UK’s productivity, with the expected downgrade of its previous assumptions likely to make her task even harder.

She claimed the Office for Budget Responsibility's summer review findings had "consistently overestimated our productivity performance”.

Ms Reeves then blamed Britain's economic woes on the impacts of leaving the European Union, austerity policies and Liz Truss’s mini-budget.

"Already, people thought that the UK economy would be 4% smaller because of Brexit,” she said.

"Now, of course, we are undoing some of that damage by the deal that we did with the EU earlier this year on food and farming, goods moving between us and the continent, on energy and electricity trading, on an ambitious youth mobility scheme.

"But there is no doubting that the impact of Brexit is severe and long lasting and that’s why we are trying to do trade deals around the world, US, India, but most importantly with the EU so that our exporters here in Britain have a chance to sell things made here all around the world.”

Care Minister Stephen Kinnock would not be drawn on making any budget predications when discussing the upcoming statement with LBC'S Nick Ferrari at Breakfast.

"We've got to see now with the forecasts of the OBR and how that looks in terms of the Budget," Mr Kinnock said.

"But what I am clear about is that this Chancellor is driving forward through our industrial strategy, through investing more in our infrastructure, five interest rates cuts, the highest growth in the G7 in the first half of this year.

"We're beginning to get on top of the years of stagnation that we inherited. But there's still a very long way to go."

The National Institute of Economic and Social Research (NIESR) has suggested Ms Reeves will need to find around £50 billion a year by 2029-30 to meet her goal of balancing day-to-day spending with tax revenues while maintaining “headroom” of around £10 billion against that target.

Asked if she was now in a “doom loop” of having to constantly hike taxes to fill a black hole, Ms Reeves said she would not use those words but “nobody wants that cycle to end more than I do”.

She said: "Challenges are being thrown our way, whether that is the geopolitical uncertainties, the conflicts around the world, the increased tariffs and barriers to trade and now this review looking at how productive our economy has been in the past and then projecting that forward.

"But I won’t duck those challenges. Of course, we’re looking at tax and spending as well, but the numbers will always add up with me as Chancellor because we saw just three years ago what happens when a government, where the Conservatives, lost control of the public finances – inflation and interest rates went through the roof."

Her words come after the IMF warned UK inflation is set to surge to the highest in the G7 group of developed democracies in 2025 and 2026.

The international financial institution increased its UK economic growth forecast for this year but reduced its assessment for 2026 amid concerns over the labour market.

Britain is set to be the second fastest-growing G7 country this year, the IMF also said, with only the US growing faster.

Shadow chancellor Sir Mel Stride said: “Rachel Reeves doesn’t need to raise taxes. She needs to get a grip of Government spending – including the welfare bill.

"Be in no doubt, this tax doom loop is down to the Chancellor’s economic mismanagement.

"Under Rachel Reeves we have seen inflation double, debt balloon, borrowing costs at a 27-year high, and taxes up – with more pain on the way in the autumn."