Rachel Reeves signals that the first budget will be a painful mix of spending cuts, tax increases and higher borrowing

Finance Minister Rachel Reeves has hinted that her first budget as finance minister could be a painful mix of spending cuts, tax rises and increased borrowing.

In an interview with Sky News after official figures showed the economy stagnated in July With GDP growth at 0.0%, she did not rule out raising corporate and wealth taxes or further cuts to already strained ministry budgets to address what she sees as the dire economic legacy of the last government.

“I have been very honest that there will be difficult decisions in the budget on spending, taxes and benefits. This was inevitable after the mess the previous government made of public finances and the state they are in,” she said.

“I made it clear during the election campaign that if I became Chancellor of the Exchequer, I would face difficult decisions.”

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Ms Reeves has ruled out increases in income tax, national insurance contributions, VAT and corporation tax, leaving a limited range of other taxes on private wealth and businesses.

She said her budget decisions would be aimed at getting public finances under control.

“It is important to bring stability back to our economy, but we will do it in a way that promotes growth so that we can grow our economy and make our country prosperous,” she said.

The need to boost growth was underlined by figures from the Office for National Statistics, which showed that the economy stalled in June and July after growing faster than expected in the first half of the year. They were consecutive months of no growth.

The new government has geared its entire government program to stimulating growth in order to allow an increase in public spending while respecting strict fiscal rules that limit borrowing.

At the same time, they impose new obligations on companies, including a series of workers' rights reforms that industry fears will increase costs.

Ms Reeves pointed to an £8 billion investment by Amazon Web Services in new data centres as evidence that companies support her vision.

“Microsoft is investing £8 billion here in the UK to create new jobs in technical skills, AI and digital infrastructure,” she said.

“They and other companies are making these investments because this government is restoring stability to our economy and working in partnership with business to unlock the enormous potential. And if we can do that, our country can be better off.”

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The Chancellor also defended her decision to cut winter heating subsidies for ten million pensioners after the government survived a rebellion by 50 MPs in a parliamentary vote last night.

She said it was a response to a £22 billion “black hole” in the public finances that needed to be filled this year and that the loss of up to £300 would be made up by rising pensions.

“These were not decisions I wanted to make, but they were the right decisions under the circumstances,” she said.

“All pensioners have benefited from the new state pension increase this winter, meaning pensions are worth £900 more than a year ago. The state pension is likely to rise by a further £460 next year. There will be no means test.”

“In this way, we will protect the weakest pensioners and at the same time begin to get a grip on our public finances, which are based on years of mismanagement, as we expect.”

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The Chancellor also indicated that further cuts in public services are to be expected.

When asked whether prisons and the justice system could cope with further cuts despite thousands of prisoners being released early, she replied: “In spending, in taxes and in social services. These decisions are necessary to get our public finances in order so that we can get our economy going again.”

“I am determined not to allow these problems to fester as the previous government allowed, because we are honest about the challenges we face.”

(c) Sky News 2024: Rachel Reeves signals that the first budget will be a painful mix of spending cuts, tax increases and