Chancellor says she was 'wrong' on tax rises during the election

The chancellor said she was “wrong” for saying she wouldn’t raise taxes in comments before the election, and blamed the Conservatives for hiding a “black hole” in the country’s finances.

Wednesday’s Budget was the biggest tax-raising fiscal event for more than 30 years, seeing taxes increased by £40bn.

Rachel Reeves has insisted the tax rises do not impact “working people”, increasing taxes on businesses rather than raising VAT, income tax and national insurance.

Speaking of her election pledge not to hike taxes for working people, Rachel Reeves told Sky News: “I was wrong on June 11, I didn’t know everything.

“Because when I arrived at the Treasury on July 5, just over a month after I said those words, I was taken into a room by the senior officials at the Treasury and they set out the huge black hole in the public finances, beyond which anybody knew about at the time of the general election because the previous government hid it from the country.”

She said her Budget marked an effort to “put our public finances back on a firm trajectory”.

It comes after Reeves admitted on Thursday that worker’s earnings could be impacted by her decision to raise national insurance contributions by 1.2 percentage points to 15% for employers.

She described the move as the “hardest decision” she made in the Budget.

On Sunday, Reeves told ITV News: “I’m not immune to the challenges that face people, particularly businesses, because of the budget choices.

“We were faced with a situation when I became chancellor where there was a £22bn black hole in public finances. Our public services were on their knees. So we needed to raise taxes to put our public finances on a solid footing.”

The size of the so-called “black hole” between the previous government’s commitments and what it was actually spending has been disputed. The Government has claimed it amounts to £22bn, while the Conservatives have dismissed it as “fiction”.

Economists at the Institute for Fiscal Studies and the Resolution Foundation suggested after the Budget that current spending plans mean the Chancellor will have to find £9bn more after next year to avoid making cuts to unprotected departments.

Reeves is counting on economic growth to help avoid further tax rises. She is expected to set out a series of reforms to pensions, welfare and industrial strategy in the coming weeks.

Combined with reforms to the planning system to speed up building projects, Labour hopes the changes will be enough to significantly boost investment, productivity and economic growth.