Reeves declines to rule out inheritance tax hike amid ‘painful’ Budget warning

The Chancellor said only she faces will need to make ‘difficult decisions in a range of areas’.

Chancellor of the Exchequer Rachel Reeves (Andy Buchanan/PA) (PA Wire)

Chancellor Rachel Reeves has declined to rule out an inheritance tax hike, after the Prime Minister warned of a “painful” Budget in October.

Speculation on the Budget’s content continues after Sir Keir Starmer argued “those with the broadest shoulders should bear the heavier burden” during a speech from Downing Street’s rose garden on Tuesday.

Labour has faced criticism following Sir Keir’s speech, with Tory leadership candidate Robert Jenrick claiming the Government has “laid the groundwork for huge tax rises”.

When questioned on tax increases during a visit to central Scotland on Wednesday, Ms Reeves told broadcasters she would be making “difficult decisions in a range of areas”.

She said: “The UK economy is just emerging from the recession that we entered into last year, and two quarters of positive economic growth is not going to reverse more than a decade of economic stagnation.

“Much work is needed to rebuild the foundations of our economy so we can rebuild Britain and make working people better off, and that is why growing our economy is absolutely essential.

“Unless we grow the economy, we’re going to continue to be in a situation where taxes are at too high a level and public spending is not sustainable.

“We’ve got to break out of this doom loop, which is why growing the economy is the number one priority of this new Government.”

Asked directly whether she could rule out an increase in inheritance and capital gains tax, she replied: “I’m not going to write a Budget two months ahead of delivering it. We’re going to have to make difficult decisions in a range of areas.”

This comes after Sir Keir asked the country to “accept short-term pain for long-term good”, as he warned “things are worse than we ever imagined” because of a £22 billion “black hole” in the public finances.

He said: “There is a Budget coming in October, and it’s going to be painful. We have no other choice, given the situation that we’re in.

“Those with the broadest shoulders should bear the heavier burden, and that’s why we’re cracking down on non-doms.”

He added: “But, just as when I responded to the riots, I’ll have to turn to the country and make big asks of you as well, to accept short-term pain for long-term good, the difficult trade-off for the genuine solution.

“I know that after all that you have been through, that is a really big ask and really difficult to hear. That is not the position we should be in. It’s not the position I want to be in, but we have to end the politics of the easy answer – that solves nothing.”

Former minister Mr Jenrick accused Sir Keir of “shamelessly attempting to rewrite history” and having “laid the groundwork for huge tax rises”.

Meanwhile, outgoing Conservative Party leader and former prime minister Rishi Sunak wrote on X: “Keir Starmer’s speech today was the clearest indication of what Labour has been planning to do all along – raise your taxes.”

When pressed on what tax rises and spending decisions the Government is considering, Sir Keir said: “We were being honest about the situation before the election, we set out very clearly what we would be doing with tax rises.”

Shadow chancellor Jeremy Hunt said: “The Chancellor’s attempt to blame her economic inheritance on her decision to raise taxes – tax rises she had always planned – will not wash with the public.

“Reeves and Starmer have spent weeks talking down the economy, whilst simultaneously handing over billions in inflation busting pay rises for their union paymasters. It simply does not add up.

“Labour promised over 50 times in the election they would not raise people’s taxes and now they are laying the ground to do just that. We will hold them to account on their promises.”