Reeves paves way for tax-raising budget with 'tough choices' talk

Chancellor to give candid speech amid pressure to break manifesto pledge

- Jessica Elgot Pippa Crerar

Rachel Reeves will lay the groundwork for a tax-raising budget that could break Labour's election promise on income tax - in a major speech in which she will be "candid" about the tough choices ahead.

In the speech as the markets open this morning, the chancellor will promise to make fair choices at this month's budget but decline to repeat her manifesto pledge of no rise in income tax, VAT or national insurance.

Keir Starmer told MPs last night it would be a "Labour budget built on Labour values" and promised it would protect the NHS, reduce debt and ease the cost of living.

The prime minister gave MPs a hint at how the government would frame its potential manifesto breach - saying it was "becoming clearer that the long-term impact of Tory austerity, their botched Brexit deal and the pandemic on Britain's productivity is worse than even we feared".

Starmer told the grim-faced crowd of MPs, many sceptical of the potential manifesto breach, that there would be "tough but fair decisions" - saying the choice of both the Conservatives and Reform would be "to return us to austerity".

Senior strategists are understood to be heavily invested in pitch-rolling the big changes before the 26 November budget, believing the key success of last year's statement was that markets were not surprised by the changes to investment rules or the national insurance rise for employers, which, although controversial, were well trailed.

Though the fiscal landscape before the budget is hard, the economic picture is said by some insiders to be less gloomy than predicted.