Chancellor Rachel Reeves

In a Sky News interview, the Chancellor confirmed she would not “duck” difficult decisions to ensure the public finances remain on a stable footing, stating she would “always make sure that the numbers add up”. The warning comes as the Office for Budget Responsibility (OBR) is expected to downgrade its forecasts for the UK’s productivity.

Ms Reeves attributed the economic challenges to a legacy of “austerity, Brexit, and the ongoing impact of Liz Truss’s mini-budget”, which she said have “weighed heavily on the UK economy”.

The fiscal hole, estimated by economists to be between £20 billion and £30bn, is being driven by higher borrowing costs, reversals on planned welfare savings, and the anticipated productivity downgrades. Some independent bodies, such as the National Institute of Economic and Social Research (NIESR), have suggested the shortfall could be as high as £50bn.

The UK government hopes to mitigate the need for drastic measures by boosting growth through planning reforms, deregulation in the City, and securing new trade deals with the US and India.

Shadow Chancellor Mel Stride accused Ms Reeves of “economic mismanagement” and creating a “tax doom loop”. He argued: “Rachel Reeves doesn’t need to raise taxes. She needs to get a grip of government spending – including the welfare bill”.