George Osborne has warned Rachel Reeves that it is “difficult to break a manifesto promise”, after she laid the groundwork for sweeping tax rises at the Budget.
The former chancellor described the government as “constrained by its promise” after Labour’s general election manifesto pledged to not increase VAT, national insurance or income tax.
On Monday, Ms Reeves signalled she would be ready to break the party’s promises, as she committed to putting the national interest above “political expediency”.
Mr Osborne told the Treasury committee on Tuesday that he thinks “tax rises are inevitable” but praised Ms Reeves for laying out the rules under which she would make her fiscal decisions.
In the session centred around the Budget on November 26, he told the cross-party group of MPs that he believes there should be a mix of tax rises and spending cuts becuase “it will be very one sided and a mistaken budget, if it’s all on tax rises”.
He added: “It’s obviously easier to go for one of the big three taxes: income tax, national insurance or VAT.
“Of course, the government is constrained by its promise, and maybe will choose to break that promise.”
He said that it is “difficult to break a manifesto promise, speaking from a sort of political point of view”, but pointed to national insurance increases under Boris Johnson and Rishi Sunak as one that had made it through parliament.
Speculation has been mounting that the chancellor could increase income tax when she delivers her Budget at the end of the month, and hinted on Monday that “each of us must do our bit” when it comes to the public finances – her strongest indication yet that changes could be coming across the board.
Mr Osborne argued that changes to “little” taxes could create the impression that the UK is “anti-enterprise”.
“If you don’t use one of the big taxes, you are left with lots of little ones,” he explained.
“And I would argue, partly, the problem last year […] – increased capital gains tax, changes to the non-dom regime – maybe individually defendable, but you put them all together, and it gives an overall impression of like the UK is quite anti-enterprise or anti-foreign wealth.”
Mr Osborne was chancellor under David Cameron between 2010 and 2016, and introduced measures such as a sugar tax, and an increase in the 40 per cent income tax threshold.
He was giving evidence on Tuesday alongside Sir Vince Cable, who served as Liberal Democrat business secretary during the coalition.
The coalition were also behind the formation of the Office for Budget Responsibility, which provides forecasts for the Treasury ahead of fiscal events.
On Tuesday, Ms Reeves said that the OBR’s review of productivity is likely to be “the most impactful thing in the Budget, in terms of the change in the fiscal and economic outlook”.
Sir Vince warned the watchdog risked becoming a “whipping boy for political failures” when it is “more necessary than ever”.
He told the committee: “I think what has happened – and I don’t think it’s the fault of the OBR – is that it’s moved from a position of just marking the government’s exam papers to setting the exam questions.
“And they’re very difficult questions. And things like projecting future productivity growth, which are virtually impossible, are probably things that should be done inside the Treasury, rather than subcontracting to OBR.”
Ms Reeves put the country on notice on Monday that tax rises are coming in her Budget at the end of the month, blaming global issues such as Donald Trump’s tariff war and lowered economic forecasts for the “hard choices” she will have to make.
She is looking to fill a black hole of tens of billions in the public finances, while keeping to her golden rule of funding day to day spending with tax receipts.
