Chancellor Rachel Reeves says the UK's public finances are at their worst since the Second World War

By Jason Groves Political Editor 22:58 08 Jul 2024, updated 23:54 08 Jul 2024

• Chancellor issued doom-laden warning of 'spending inheritance' left by Tories
• Labour's manifesto pledged no rises on income tax, National Insurance or VAT 
• Tory party ­spokesman accused Reeves of ­preparing ground for swingeing rises

Labour was accused of clearing the way for tax rises last night, after Rachel Reeves warned Britain's public finances are in the worst state since the Second World War.

The new Chancellor issued a doom-laden warning about the 'spending inheritance' left behind by the ­Conservatives, whom she accused of years of 'economic irresponsibility'.

And she revealed she has already commissioned Treasury officials to conduct a review of the public finances 'so that I can understand the full scale of the challenge'.

Ms Reeves said she would set out the results later this month when she updates Parliament on the date of her first Budget, which is expected in September.

Labour's manifesto pledged the party would not raise the headline rates on income tax, National Insurance or VAT. 

But it left the door open to changes in a string of other taxes, including capital gains tax, inheritance tax and council tax.

During the election campaign, Ms Reeves appeared to accept she would not be able to 'open the books' and say things are worse than she thought because 'we've got the Office for Budget Responsibility now', which publishes full details of the public finances.

Paul Johnson, director of the ­Institute for Fiscal Studies, said: 'The books are open. Everyone knows exactly the ­problems a new government will inherit.'

But Ms Reeves yesterday suggested that her first 72 hours in the job had ­convinced her the situation might be worse than it seemed.

In her first major speech as ­Chancellor to business leaders at the Treasury, she said: 'I have repeatedly warned that ­whoever won the General Election would inherit the worst set of circumstances since the Second World War,' she said.

'What I have seen in the past 72 hours has only confirmed that our economy has been held back by decisions deferred and decisions ducked, political self-interest put ahead of the national interest. 

'A Government that put party first and country second.'

She added: 'That is why over the weekend I instructed Treasury officials to provide an assessment of our spending inheritance so that I can understand the full scale of the challenge.'

A Tory party ­spokesman accused the Chancellor of ­preparing the ground for  swingeing tax rises.

'Rachel Reeves herself said you don't need to win an election to find out the state of the public finances, admitting that with the OBR, there is already detailed public scrutiny of the country's finances,' the spokesman said. 

'We warned that Labour would attempt this ruse as a cause to raid pensions and raise taxes. It is now clear that is coming to pass, and the British people will pay the price.'

A Treasury source denied that Ms Reeves was already plotting a new tax raid, saying her speech was focused on the need to boost ­economic growth in order to meet future spending needs without raising taxes.

In her speech, the Chancellor said economic growth was the 'only route to the improved prosperity'. 

She also took a swipe at union barons who are already urging her to open the spending taps.

Unite union boss Sharon ­Graham urged her to scrap Labour's tight fiscal rules and pour tens of billions into Britain's 'crumbling public services'.

But Ms Reeves said she did not agree with those arguing that, now the election is won, 'the time for caution is over'.

She said her borrowing rules would remain in place, adding: 'I know that many of you aren't used to hearing this after recent years, but I believe that the promises that a party is elected on should be delivered on in government.'

Meanwhile, Tony Blair will warn today that Britain is facing 'an unenviable triple whammy of high taxes, heavy debt and poor ­outcomes' unless ministers embrace the use of artificial ­intelligence in the public sector.

He said AI could generate annual savings of £10 billion by the end of the Parliament and £35 billion in a decade – and said failure to embrace the technology would leave the UK 'much poorer'.