Reeves plans tax rise amid alarm over 'black hole'

Rachel Reeves is planning to raise taxes, cut spending and get tough on benefits in October's budget amid Treasury alarm that the pick-up in the economy has failed to improve the poor state of the public finances.

- Larry Elliott, Peter Walker

With the latest official set of borrowing figures due out today, the chancellor is insisting she will still have a substantial black hole to fill despite stronger than expected growth in the first half of 2024.

Reeves is concerned at official figures showing that borrowing was already running more than £3bn higher in the first three months of the financial year from April to June than forecast by the independent Office for Budget Responsibility at the time of Jeremy Hunt's March budget.

The chancellor announced last month that she was scrapping winter fuel payments for most pensioners, shelving plans for social care reform and axing road, rail and hospital investment as the first stage of a plan to reduce borrowing.

But the Treasury made clear last night that further hard choices would need to be made when Reeves delivers the first Labour budget since 2010 on 30 October.

A source said: "We don't accept the positive economic inheritance line, given the decade that went beforebut regardless, nothing in the recent data can offset the scale of the black hole in the public finances that we're looking at."

Traditionally, new chancellors seek to get bad news out of the way in the first budget after an election a time when they can seek to blame their predecessors for any unpopular decisions they make.