Reeves and Starmer to set stage for tax rises as Bank issues inflation warning

The chancellor and prime minister will begin to prepare the country for tax rises and reforms from September as part of a strategy to lay the groundwork for a difficult budget that could be held in November, the Guardian has been told.

- Exclusive Jessica Elgot Richard Partington Eleni Courea

Although Treasury sources have said Rachel Reeves will stick to her promise not to raise income tax, national insurance or VAT, senior Whitehall sources said that the chancellor and Keir Starmer had begun a series of meetings to thrash out the shape of the budget.

A rise in gambling levies - advocated by the former prime minister Gordon Brown - is thought to be almost guaranteed as part of the package of tax rises.

The pressure facing the government was underlined yesterday when the Bank of England warned it could be forced to keep interest rates at higher levels for longer than previously thought as soaring food prices linked to Labour's tax increases threaten to drive inflation to 4% this year.

The central bank cut interest rates to their lowest level in two years but warned Britain was facing a toxic cocktail of sluggish growth, rising unemployment and stubbornly high inflation.

Reeves and Starmer have held talks over recent weeks to begin to set the outlines of the budget and the economic narrative in advance of Labour's conference.

The government's limited options were further emphasised this week when the National Institute of Economic and Social Research (NIESR) said "moderate but sustained" tax rises would be needed in the budget for Reeves to overcome a deficit of £41.2bn and restore a near £10bn fiscal buffer.

No date has been set for the budget, which was held last year on 30 October, but government sources expect it will be in November, giving the chancellor a little longer to prepare the country for tax rises or spending cuts - as well as hoped-for improvements in growth.

Advisers believe that a "no surprises" approach will be crucial to prevent negative market reaction. "Last year was a model of how to do it. Had we done it otherwise, it would have been a mess," one said.