Rachel Reeves ‘derails’ economy with ‘toxic cocktail’ of tax rises and spending hikes

Chancellor Rachel Reeves has been accused of creating a “toxic cocktail” of tax rises and spending hikes after government borrowing soared on her watch.

She complained that the left a £22billion “black hole” in the public finances after Labour won last year’s election and vowed to fix the problem.

But new official figures released on Wednesday suggest she has only made the problem worse, strengthening fears that Labour will be forced to introduce massive spending cuts.

Figures showed a surge in government borrowing last month to nearly £18billion, the highest level for four years.

The Office for National Statistics said borrowing was driven higher by spending on public services and benefits, as well as rising debt interest payments. An increase in tax receipts was also offset by the previous government’s move to cut National Insurance.

Shadow Chancellor Mel Stride said: “Labour are already losing control of the finances.

“Figures out today show borrowing is higher than forecast. So far this financial year it has been almost the highest since records began, second only to the pandemic. The Chancellor needs to get a grip.”

Darwin Friend, head of research of the TaxPayers’ Alliance, said: “The latest borrowing figures put paid to the ludicrous claim that the new Government is fixing the foundations.

“The toxic cocktail of tax rises and spending increases that Reeves forced on the country in her disastrous Budget has completely derailed the public finances, which were hardly in a healthy state beforehand.

“The Chancellor needs to urgently reverse her high-tax, high-spend agenda with a new fiscal statement.”

The Chancellor has previously ruled out both increasing borrowing and raising levies following the significant tax increases in October’s Budget, leaving her with few options beyond further spending cuts.

Treasury watchdog the Office for Budget Responsibility will publish a report on March 26 that indicates the scale of cuts that will be needed.

Highlighting that cuts are coming, Chief Secretary to the Treasury Darren Jones warned Government departments that do not meet a 5% savings target in the upcoming spending review will not get cash for “new priorities”.

He also previously signalled that government spending is “long overdue a reckoning”.

As Chief Secretary, Mr Jones is responsible for assessing ministers’ requests for cash and has said he will adopt a “zero-based” approach that requires every pound the Government spends to be fully justified.

Ministers have been told to find efficiency savings worth 5% of their departments’ budgets. However, the rising cost of borrowing could mean even steeper cuts are required if the Government is to meet the fiscal rules it has set itself.

Speaking at the one-day conference of the influential Institute for Government think tank, Mr Jones said: “Taxpayers and the users of public services obviously deserve better.

“We therefore won’t settle for doing things the same and hoping for a different result, we have to do things differently, and we will.

“That is why funding from the Treasury to support new priorities will only be made available to departments that have first fulfilled the requirements of our zero-based review and met the minimum 5% savings and efficiency target required in this spending review process.”

Ms Reeves announced on Tuesday that the spending review, when she is expected to reveal multi-year spending plans for government departments, will take place on June 11.