'It's worse than we feared,' warns PM - as chancellor prepares to lay ground for tax rises

Sir Keir Starmer and Rachel Reeves have hinted at tax rises to come when the chancellor delivers the budget later this month.

In a Downing Street speech this morning, Ms Reeves will address "speculation" that an increase in income tax will be announced during the highly-anticipated statement on 26 November. Politics Hub: Follow chancellor's speech live Sky News political editor Beth Rigby said it was "highly unusual" for the chancellor to make such a speech, but the Treasury believes she must "try to prepare the ground and make the argument for another big tax-raising budget".

"I will make the choices necessary to deliver strong foundations for our economy - for this year, and years to come," Ms Reeves will say. Last night, Sir Keir gave Labour MPs a taste of what's to come by warning of the need for "tough but fair" decisions.

Speaking at a party meeting in Westminster, he said the budget "takes place against a difficult economic backdrop". "It's becoming clearer the long-term impact of Tory austerity, their botched Brexit deal and the pandemic on Britain's productivity is worse than even we feared," the prime minister said.

"Faced with that, we will make the tough but fair decisions to renew our country and build it for the long term." It comes after Sir Keir refused to confirm at Prime Minister's Questions last week that the budget would honour his party's manifesto pledge not to raise income tax, national insurance or VAT. Having raised taxes in last year's budget, notably national insurance on employers, Ms Reeves has also previously promised not to "come back for more" during this parliament.

The PM and chancellor's warnings come after reports suggested the Office for Budget Responsibility is expected to downgrade its productivity growth forecast for the UK by about 0.3 percentage points. That would leave Ms Reeves with a larger than expected fiscal black hole to fill, possibly up to £30bn.

Read more: What taxes could rise? She is said to be considering a proposal from The Resolution Foundation, a left-leaning thinktank close to the government, to raise income tax by 2p but cut national insurance by the same amount. The thinktank, which used to be headed by Torsten Bell, a Labour MP who is now a key aide to Ms Reeves and a pensions minister, said the move would raise vital cash while protecting working people.

Reeves to prioritise NHS and cost of living Giving a further flavour of what to expect, Ms Reeves will this morning vow to make "important choices that will shape our economy for years to come". "It is important that people understand the circumstances we are facing, the principles guiding my choices - and why I believe they will be the right choices for the country," she will add.

Ms Reeves will say her priorities are cutting national debt, easing the cost of living and protecting the NHS. "It will be a budget led by this government's values," she's set to say.

"Of fairness and opportunity and focused squarely on the priorities of the British people: protecting our NHS, reducing our national debt and improving the cost of living.".