The chancellor and prime minister will begin to pitch-roll tax rises and reforms from September as part of a strategy to prepare the country for a difficult budget that could be held in November, the Guardian has been told.<\/p>\n
Although Treasury sources have insisted Rachel Reeves<\/a> will stick to her pledge not to raise income tax, national insurance or VAT, senior Whitehall sources said that she and Keir Starmer had begun a series of meetings to thrash out the shape of the budget.<\/p>\n A rise in gambling levies \u2013 advocated by the former prime minister Gordon Brown<\/a> \u2013 is thought to be near-guaranteed as part of the package of tax rises.<\/p>\n The pressure facing the government was underlined on Thursday when the Bank of England<\/a> warned that it could be forced to keep interest rates at higher levels for longer than previously thought as soaring food prices linked to Labour\u2019s tax increases threaten to drive inflation to 4% this year.<\/p>\n The central bank cut interest rates to their lowest level in two years but warned Britain was facing a toxic cocktail of sluggish growth, rising unemployment and stubbornly high inflation.<\/p>\n Reeves and Starmer have held talks over the past weeks to begin to set the parameters of the budget and the economic narrative before Labour\u2019s conference. The government\u2019s limited options were further emphasised this week when the National Institute of Economic and Social Research said \u201cmoderate but sustained\u201d tax rises would be needed<\/a> in the budget for Reeves to overcome a deficit of \u00a341.2bn and restore a near-\u00a310bn buffer.<\/p>\n No date has been set for the budget, which was held last year on 30 October, but government sources expect that it will be in November, giving the chancellor a little longer to roll the pitch for controversial tax rises or cuts \u2013 as well as hoped-for improvements in growth.<\/p>\n Advisers believe that a \u201cno surprises\u201d approach will be crucial to prevent negative market reaction. \u201cLast year was a model of how to do it,\u201d one said. \u201cHad we done it otherwise, it would have been a mess.\u201d<\/p>\n Sources pointed towards the early signs Reeves gave to the markets more than a month before her budget last year that she planned to change her fiscal rules around borrowing to invest \u2013 and said there would be a similar approach this time.<\/p>\n However, Labour was roundly attacked by business leaders afterwards for failing to warn about a \u00a325bn increase<\/a> in employer national insurance contributions (NICs), with companies including Tesco and Boots warning that it would raise their costs by \u00a37bn and lead to higher prices and job cuts.<\/p>\n Gordon Brown (left) and Keir Starmer. Brown has advocated spending funds raised from parts of the gambling industry on lifting the two-child benefit cap. Photograph: Jane Barlow\/PA<\/p>\n Starmer has spent the week in Chequers meeting key aides and ministers as he begins work on his conference speech. The prime minister is understood to be keen to spend much of the summer thinking about the longer-term major structural problems in the UK economy that the party failed to identify before the election: the sources of low economic growth and productivity.<\/p>\n Strategists also believe that the budget should be a moment to make the argument that Britain must now make serious choices on growth and productivity. They say Starmer must forcefully rebut the charges that the poor state of the economy is down to individual tax and spend choices, but is a sign of the weakness of the economy\u2019s fundamentals.<\/p>\n The budget, they believe, should be a moment to set out the hard road of reforms to tackle those issues.<\/p>\n Reeves and Starmer are understood to have agreed some broad principles for the budget and the Treasury will begin to submit ideas to Downing Street towards the end of the month.<\/p>\n But sources close to Reeves said she is unmoved on her two main pledges \u2013 there will be no rise in income tax, national insurance or VAT and no change to the fiscal rules.<\/p>\n One tax rise that is near certain is a change to gambling levies, despite a massive lobbying offensive by the industry. Brown has urged Reeves to spend funds from raising taxes on parts of the gambling industry on lifting the two-child benefit cap, a measure likely to be made even more expensive by higher inflation.<\/p>\n skip past newsletter promotion<\/a><\/p>\n Sign up to Business Today<\/p>\n Get set for the working day \u2013 we’ll point you to all the business news and analysis you need every morning<\/p>\n Privacy Notice: <\/strong>Newsletters may contain info about charities, online ads, and content funded by outside parties. For more information see our Privacy Policy<\/a>. We use Google reCaptcha to protect our website and the Google Privacy Policy<\/a> and Terms of Service<\/a> apply.<\/p>\n after newsletter promotion<\/p>\n In one of its closest decisions since its independence more than 25 years ago, the Bank\u2019s monetary policy committee (MPC) voted by 5-4 to cut its key base rate by a quarter point to 4%.<\/p>\n Taking borrowing costs to the lowest level since March 2023, a cut was widely expected in financial markets. However, the decision was a close call, with the rate-setting panel for the first time in history holding two votes before reaching its verdict.<\/p>\n