New taxes on the rich will be ‘part of the story’ of Budget, says Reeves as she blames Brexit, Farage and the Tories… anyone but herself

The rich are set to be targeted in the Budget, the Chancellor has revealed.

Asked if higher taxes on the wealthy would feature in her crucial statement next month, Rachel Reeves agreed: ‘That will be part of the story.’ But she denied it would spark an exodus of better-off Britons.

‘Last year, when we announced things like the non-doms, like the private equity, like the VAT on private school fees, there was so much bleating that it wasn’t going to raise the money – that people would leave,’ Ms Reeves said during her visit to Washington DC for the annual meeting of the International Monetary Fund.

‘And that scaremongering didn’t pay off, because this is a brilliant country and people want to live here.’

Last month she ruled out a ‘standalone wealth tax’. Instead, there is speculation she will target the wealthy by hiking capital gains tax rates, making landlords pay National Insurance on rental income or creating higher council tax bands for the priciest properties. 

Ms Reeves declined to comment on specific measures she will take to fill a black hole put at £30billion.

But she vowed: ‘In the Budget next month, there won’t be a return to austerity.’

It came as Ms Reeves blamed Brexit, austerity and the Tories for the grim state of Britain yesterday. 

Shadow Chancellor Sir Mel Stride told the Daily Mail: ‘The Chancellor should start owning up to her own mistakes’ 

The Chancellor gave the clearest indication yet that she will inflict more punishing tax rises – and signalled she is also looking to cut spending. 

But her claim that the Government was still having to ‘undo some damage’ from leaving the European Union sparked a backlash.

Ms Reeves said: ‘Austerity, Brexit, and the ongoing impact of Liz Truss’s mini-budget, all of those things have weighed heavily on the UK economy.’

The Tories accused her of blaming ‘someone else’ every time the numbers ‘don’t add up’.

Shadow Chancellor Sir Mel Stride told the Daily Mail: ‘The Chancellor should start owning up to her own mistakes and accept responsibility for the poor decisions she has made – letting spending spiral, failing to reform welfare, and hammering families with higher taxes to cover her own economic mismanagement.

‘A theme is emerging: when things go wrong, it’s never Rachel Reeves’ fault – but it’s always your family that pays the price.’

Ms Reeves’ comments underline Labour’s desperate new tactic of trying to blame Brexiteers, including Nigel Farage, for the country’s woes.

In an interview yesterday, the Chancellor was grilled on concerns that the UK is in a ‘doom loop’, where she crushes growth by increasing taxing – and then has to push the burden up again to make the government’s books balance.

Ms Reeves mixes gin with Jared Brown, co-founder of Sipsmith, as she visits the Sipsmith distillery in Chiswick, London, on October 9

‘Nobody wants that cycle to end more than I do,’ she told Sky News, before stressing she ‘would not use those words’ to describe Britain’s position.

Ms Reeves effectively confirmed that the Office for Budget Responsibility is downgrading productivity forecasts after years in which they have proved too optimistic. 

That is one of the main contributors to the strain on the public finances. 

Pushed that there are ‘tax rises coming down the tracks’, Ms Reeves replied: ‘Yeah, but I think… in the terms of the ambition of this government it is big.’

Told that she had just agreed tax rises were coming, Ms Reeves said: ‘I was really clear during the general election campaign – and we discussed this many times – that I would always make sure the numbers add up.’

Yesterday No 10 would not repeat Labour’s manifesto commitment not to hike income tax, national insurance or VAT – fuelling speculation the Government could break its promise.

Instead, a spokesman for the Prime Minister pointed to Sir Keir Starmer’s comments a fortnight ago that the manifesto ‘stands’.

It came as figures from the International Monetary Fund showed that the UK is already on course to raise taxes at the fastest pace in the G7 group of advanced nations.

Ms Reeves effectively confirmed that the Office for Budget Responsibility is downgrading productivity forecasts after years in which they have proved too optimistic

They found that revenues – which are largely from taxes – would rise from 38.3 per cent in 2024 to 40.6 per cent by 2029, as a percentage of gross domestic product.

That increase of 2.3 percentage points was larger than Germany, France, Italy, Canada, the US and Japan – the other members of the G7. Some of them are even reducing their tax burden over the period.

And it equates to around £66 billion of extra taxes at current prices.

Martin Beck, chief economist at WPI Strategy, said: ‘This is a worrying signal for growth prospects and the UK’s ability to narrow the productivity gap with more dynamic economies.

‘The productivity-sapping effect of ever-higher taxes threatens to make the UK even more of a laggard.’

It came as economists warned Reeves may need to find as much as £42billion next month to stop her ‘limping’ on to the next Budget.  

To avoid a ‘fiscal groundhog day’ next year, the Institute for Fiscal Studies (IFS) urged the Chancellor to avoid doing the ‘bare minimum’ and instead be ‘bold’.

It warned that rising borrowing costs, weaker growth forecasts and spending commitments made since the Spring could leave her needing to find £22billion.

But the IFS said this would only restore the £10billion of headroom Ms Reeves left herself at the last Budget, and suggested she build a bigger buffer.

IFS director Helen Miller said: ‘There is a strong case for the Chancellor to build more headroom against her fiscal rules.

‘That wouldn’t be costless – but nor is limping from one forecast to the next under constant speculation that policy will be tightened again. Persistent uncertainty is damaging to the economic outlook.’

The IFS declined to put a precise figure on how much headroom Ms Reeves should give herself, saying it depended on the Office for Budget Responsibility’s forecast.

‘If the OBR produces a much smaller downgrade than lots of people are expecting, maybe it is easier to get back to £20 or £30billion headroom,’ associate director Ben Zaranko said.

‘If the OBR actually produces something that looks really quite negative, then the size of consolidation required maybe starts to look dauntingly big.’

Ms Miller said the Chancellor’s failure to give herself a big enough buffer at the last Budget had left her exposed – and said the situation facing Ms Reeves was ‘to a large extent’ of her ‘own making’.

‘When choosing to operate her fiscal rules with such teeny tiny headroom, Ms Reeves would have known that run-of-the-mill forecast changes could easily blow her off course,’ she added.

The IFS said implementing a larger ‘fiscal consolidation’ – tax hikes and spending cuts – would be ‘the most straightforward route’ to avoiding similar challenges in future years.

But it acknowledged that spending cuts would ‘pose challenges’, while tax rises are not simple due to Labour’s manifesto ruling out increases to income tax, national insurance or VAT.

The IFS warned against seeking ‘large sums from a small number of taxpayers’, and said the Chancellor ‘should be bold’ and reform the tax system to be ‘more rational’ and impinge less on economic growth.

It came as the IFS published its annual ‘green budget’ setting out the challenges facing the Chancellor ahead of the Budget each year.

The green budget also includes analysis from Barclays, which suggests that unemployment could rise to 5per cent in 2026 amid slowing growth and above-target inflation.

Jack Meaning, chief UK economist at Barclays, said: ‘With the right policy decisions, this near-term challenge can be navigated toward a more favourable medium-term outlook.

‘If the Chancellor can avoid delivering an inflationary Budget, headline price growth should ease significantly in the coming months, allowing the Bank of England to cut interest rates further and support households and businesses in driving more balanced economic growth.’