Chancellor must raise taxes or fail, warns former adviser

Rachel Reeves must U-turn on her manifesto pledge not to raise taxes for working people or Sir Keir Starmer's government will be forced to abandon other key priorities, one of the chancellor's former top advisers has warned.

- DAVID MADDOX, ARCHIE MITCHELL

Jim O'Neill, a former Goldman Sachs chief turned Treasury minister who quit the Conservatives and later advised Ms Reeves, said she faces no choice but to abandon key parts of her economic policy - including her commitment not to raise income tax, national insurance contributions for employees or VAT.

Questioning whether that promise was now sustainable, he told The Independent: "Without changing some of the big taxes, welfare and pensions, they [Labour] can't commit to things like Northern Powerhouse Rail, small modular nuclear reactors, and various other things that will make an investment and growth difference." His comments come in the wake of a disastrous week for Sir Keir's government as ministers were forced to abandon key parts of welfare reforms to stop a rebellion by Labour MPs, leaving a £5bn black hole in its spending plans.

In a week defined by a distressed Ms Reeves shedding tears during Prime Minister's Questions, the pressure on the government to balance the books and dramatically change strategy has increased, with the chancellor admitting that the Uturn came at a "cost".

But with Labour dropping spectacularly in the polls - and the prime minister facing growing disquiet from the back benches mention of the government's missions has all but disappeared, while the economy stagnates.

Lord O'Neill claimed that part of the problem was that the government was caught in short-term thinking about Nigel Farage and Reform, who have taken a large poll lead. "They need to stop worrying about Farage, they have four years before that should matter," he said.