Rachel Reeves has given her biggest hint yet that the government could break its manifesto promises on tax at the Budget.
The chancellor has said that it would be “possible” for ministers to stick with their election pledges, but warned that doing so would mean “deep cuts” in other areas of spending.
Speculation has been rampant in recent days that the chancellor is preparing to increase income tax in the Budget at the end of this month as she looks to balance the country’s books.
Labour’s manifesto for the 2024 general election campaign pledged that the party would not raise income tax, VAT or national insurance.
In the same interview on Monday, Ms Reeves also said she does not think it is right that children are “penalised” for being part of large families, suggesting she is open to ending the two-child benefit cap.
The chancellor said it was important not to let the “costs to our economy in allowing child poverty to go unchecked”, adding: “In the end, a child should not be penalised because their parents don’t have very much money. Now, in many cases you might have a mum and a dad who were both in work, but perhaps one of them has developed a chronic illness, perhaps one of them has passed away.
“There are plenty of reasons why people make decisions to have three, four children, but then find themselves in difficult times.”
She added: “So, we will take action on child poverty. The last Labour government proudly reduced child poverty and we will reduce child poverty as well.”
Speaking to BBC Radio 5 Live, Ms Reeves said that when Labour composed their manifesto, “it had in it our spending commitments and then the tax changes that would be needed to pay for those … the truth is, what we inherited is significantly worse.”
Pushed on the party’s commitment to the manifesto, the chancellor told the station: “I will set out the choices in the Budget.
“It would of course be possible to stick with the manifesto commitments, but that would require things like deep cuts in capital spending.
“And the reason why our productivity and our growth has been so poor these last few years is because governments have always taken the easy option to cut investment in rail and road projects, in energy projects, in digital infrastructure.
“And as a result we’ve never managed to get our productivity back to where it was before the financial crisis.
“So we’ve always got choices to make, and what I promised during the election campaign was to bring stability back to our economy. What I can promise now is I will always do what I think is right for our country.”
There have been warnings that No 10 could face a backlash from ministers if the manifesto promise is broken.
The Budget comes several months after the government backed down in the face of a revolt from its own MPs on welfare reform.
Amid the disquiet, MPs have been pushing for ministers to lift the two-child benefit cap, and Ms Reeves said on Monday that “child poverty should not be tolerated”.
