Rachel Reeves admits she is looking at tax rises and spending cuts in Budget as she blames Brexit

Rachel Reeves has admitted she is considering tax increases and spending cuts to fill a huge fiscal black hole in her budget.

Asked about the state of the UK economy as he prepares to make a statement in November, the Chancellor said “of course we are looking at taxes and spending”.

Ms Reeves was speaking before heading to the US for an International Monetary Fund (IMF) meeting.

The IMF warned that inflation in the UK will reach the highest level in the G7 group of developed democracies in 2025 and 2026.

It also raised its forecast for Britain’s economic growth this year but lowered its assessment for 2026 due to concerns about the labor market.

The IMF has stated that Britain will be the second fastest growing G7 country this year, with only the US growing faster.

When asked about tax increases in his budget, the Chancellor put the blame on Brexit, saying Brexit had a “serious and long-lasting” impact on the economy.

He is the last senior Labor figure to speak publicly about the implications of Brexit, after years when the party feared it would be accused of treason if the result of the EU referendum was too openly critical.

Sir Keir Starmer linked Brexit to the small boat crisis in the English Channel and branded boats landing in Dover as “Farage boats” due to the loss of a deal allowing countries to send refugees back to the countries where they first sought asylum.

Meanwhile, Health Secretary Wes Streeting said there was “no doubt” that Brexit had held the economy back since 2016 and said he was “delighted that Brexit is now an issue we dare to speak out about”.

Asked about reports that the UK’s spending watchdog had increased the scale of the deficit Ms Reeves would have to close, he told Sky News they were “consistently overestimating our productivity performance”.

Asked whether this was because of Brexit, Ms Reeves said: “It’s up to them (the Office for Budget Responsibility) to determine that. But austerity, Brexit and the ongoing impact of Liz Truss’s mini-budget, all of that has put a heavy strain on the UK economy.”

“People thought the UK economy would shrink by 4 per cent due to Brexit.

Ms Reeves said Sir Keir’s government was working to undo the damage caused by Brexit, drawing up a youth mobility plan with the EU and a deal on the sale of goods across borders.

But he added: “There is no doubt that the impact of Brexit is severe and long-lasting and that is why we are seeking to strike trade deals around the world, in the US and India but most importantly with the EU, so that our exporters in Britain will have the opportunity to sell products made here around the world.”

It comes after the Chancellor was warned ahead of the November Budget that the situation he faces is “hopeless”.

The Chancellor faces a black hole of up to £50bn and is expected to raise taxes next month, but has been told he cannot afford to fix margins by choosing smaller tax increases from a “Scrabble bag”.

Leading tax expert Dan Neidle, founder of Tax Policy Associates, said the “smart” way for Ms Reeves to raise taxes would be to “increase one of the main taxes, probably by expanding the VAT base”; This may or may not break the manifesto commitment.

Labor promised on Wednesday it would stand by its pledge before the general election not to increase VAT, income tax or national insurance payments.

Ms Reeves confirmed she would look at a range of “tax and spend” measures in the Budget and suggested public services could also face cuts.

He blamed “the challenges that lie ahead, whether it’s geopolitical uncertainties, worldwide conflicts, rising tariffs and barriers to trade.”

But shadow chancellor Sir Mel Stride said: “Rachel Reeves doesn’t need to raise taxes. She needs to get government spending under control, including the welfare bill.

“Make no mistake, this cycle of tax disaster is due to the Chancellor’s economic mismanagement.

“Under Rachel Reeves we have seen inflation double, a debt bubble form, borrowing costs are at a 27-year high and taxes rise with more hardship in the autumn.”