Cabinet minister Bridget Phillipson has doubled down after the chancellor issued a stark warning over the state of Britain’s ailing economy, saying she would make tough choices to put it back on a secure footing in the long term.
The education secretary admitted there are “major problems” plaguing the economy, saying that the government will do what is “necessary” to remedy them.
It comes after Rachel Reeves put the country on notice that sweeping tax rises were coming in her Budget, warning “we will all have to contribute” to building a new future for Britain in a major Downing Street address on Tuesday.
Promising to put the national interest above “political expediency”, the chancellor signalled she is ready to break Labour’s manifesto commitment not to raise income tax, personal national insurance or VAT.
Instead, the chancellor said “each of us must do our bit” – her strongest indication yet that she will raise income tax across the board when she delivers the Budget on 26 November.
While Ms Phillipson said the government takes its manifesto promises “seriously”, she failed to rule out breaking the pledge.
She told the BBC: “Where it comes to our manifesto, of course, we take the commitments we made seriously.
“And as the chancellor was saying yesterday, we know that there are some big challenges in the economy. We’ve made lots of changes already that are putting things on a more stable footing.
“That’s why we’ve seen interest rate cuts, we’ve seen growth being the fastest in the G7 in the first half of the year.
“But there are some big global factors that remain a challenge, and that’s why we will do what’s right, what’s necessary, both for the public but also for the long-term future of our economy.”
She added that the Office for Budget Responsibility (OBR) will show “the damage of the chaotic Brexit we saw, the damage of years and years of austerity was even more serious than we anticipated”.
“Unfortunately, that is causing major problems in terms of our economy and that’s where we are at the moment, I’m afraid to say.”
It comes as Ms Reeves scrambles to fill a black hole of up to £50bn in the public finances while keeping to her golden rule of funding day-to-day spending with tax receipts.
The Times reported that the chancellor is considering scrapping the 5p cut in fuel duty in the budget amid concerns that retailers are failing to pass on the benefit to motorists.
The relief, which was first introduced in 2022, was billed as a temporary measure but has been renewed by successive chancellors.
Ms Reeves is also said to be considering slashing funding for more energy-efficient homes to pay for a cut in energy bills, as part of an attempt to ease the cost of living.
Sources told The Guardian the chancellor is looking at imposing a multibillion-pound energy support package that could axe taxes and green levies from people’s bills in an attempt to cut £170 from the average bill.
But it is thought that chancellor will also have to go for major taxes like income tax in order to fill the majority of the gap in the public finances, with a leading economic think tank on Wednesday warning that the chancellor will need to hike the basic rate of income tax by at least 2p in order to plug the gap and avoid a “fiscal doom-loop”.
A major report from the National Institute of Economic and Social Research (NIESR) said that instead of “messing around” with changes to marginal taxes, the chancellor will probably need to break her manifesto pledge not to hike taxes on working people in order to avoid more long-term economic damage.
It said a 2p increase to the 20 per cent basic rate of income tax, which would raise around £20bn, is the minimum needed to plug a hole in the battered public finances, while a 5p rise on the 40 per cent rate would raise an extra £10bn. Around £500m would be raised from a similar hike to the upper band, it added.
