Rachel Reeves hints at fresh tax raid as £40bn hole blown in Labour budget

Rachel Reeves could be forced to raise taxes in an effort to fill a staggering £40 billion black hole in the next Budget, experts warned. Earlier this week, the Government U-turned on welfare reforms, and the Chancellor said this would be "reflected in the Budget". She did not explicitly say where the money would come from, but maintained her "fiscal rules" would not change, raising questions over the possibility of tax hikes.

Ms Reeves was also warned by the Institute for Fiscal Studies (IFS) that she will have to raise the same amount as she did in last year's Budget, which was slammed for slowing economic growth. IFS economist Ben Zaranko said it was "not hard to imagine a world where they are of a ballpark similar scale to last autumn".

He added: "If you have the perfect storm of economic forecasts being downgraded, additional spending commitments because these reforms haven't got through Parliament, and the world is in a gloomier place generally, you could comfortably be into double-figures billions even before you talk about any retail offers.

"A £20, £30, £40 billion Budget is not what the Government would want, but it's not impossible by any means."

Recent U-turns have only exacerbated the problem for Labour, with the climbdown on the Winter Fuel Allowance costing £1.5 billion and scrapped cuts to Personal Independence Payment (PIP) costing as much as £6 billion.

On top of this, Labour MPs are still campaigning to end the two-child benefit cap.

Despite this, Ms Reeves remains committed to her promise of not raising taxes, telling the Confederation of British Industry that her Budget had "drawn a line under the inheritance" she received from the Conservative government.

She said: "Public services now need to live within their means because I'm really clear. I'm not coming back with more borrowing or more taxes."

However, not everyone believes she will be able to keep her promise. Shadow Chancellor Mel Stride said "further painful tax hikes" are immident as Labour remain tight-lipped about how they will fund their policies.

He told the Mail: "Businesses and hardworking families should brace themselves for further painful tax hikes as Rachel Reeves scrambles to plug the gaping hole left by this weak prime minister's economic mismanagement.

"This week's chaos exposes Labour's inability to govern - pushing us towards higher taxes and a spiralling debt crisis. It doesn't have to be this way."