Rachel Reeves is poised to deliver a new caution on taxes this Tuesday, as speculation mounts that she may abandon Labour’s manifesto with an income tax increase.

In an unexpected move, the Chancellor will take to Downing Street early in the morning to address rumors surrounding her upcoming Budget on November 26, where a tax rise potentially reaching £30 billion is anticipated.

Ms. Reeves has maintained a low profile since the Daily Mail exposed her legal oversight in not securing the required license for renting out her family property.

However, on Tuesday, the embattled Chancellor will re-emerge to acknowledge that the public finances are in a more precarious condition than previously disclosed.

Despite the economic challenges, Ms. Reeves will dismiss the idea of spending cuts, advocating instead for increased ‘investment’ to rejuvenate the economy and sustain public services.

Downing Street indicated her speech would delineate ‘the clear choice we face – either investment and hope, or cuts and division’.

Sir Keir Starmer warned Labour MPs on Monday night that the Budget would involve ‘hard and serious decisions’ but insisted they would be ‘fair’.

No 10 refused to say whether Labour’s manifesto pledge to not increase income tax, VAT or National Insurance still stands.

The Conservatives urged the PM on Monday night to sack his Chancellor if she breaks Labour’s tax pledges to the country.

Rachel Reeves will issue a fresh tax warning on Tuesday, amid growing speculation she is preparing to tear up Labour ‘s manifesto by hiking income tax

The Chancellor will use an early morning speech in Downing Street to address ‘speculation’ about the contents of her November 26 Budget

Labour Party pictured in June 2024 when they launched their general election manifesto

Shadow Chancellor Sir Mel Stride said: ‘It’s taken Rachel Reeves more than a year to admit her first Budget was a failure. Now, with an emergency press conference, she is all but confirming what many feared – higher taxes are on the way.

‘If Rachel Reeves breaks her promises yet again, Keir Starmer must take responsibility and sack her. The country needs a Chancellor with a plan and a backbone.’

Ms Reeves is considering a proposal from the Left-wing Resolution Foundation to raise income tax by 2p, in what would be the first increase in the basic rate for 50 years.

The move could be partially offset by a 2p cut in National Insurance but would still raise an extra £6billion a year from pensioners and others. 

She is also looking to extend the six-year freeze on tax thresholds, dragging millions more into higher tax bands – despite previously warning the move would break Labour’s manifesto pledge.

The Resolution Foundation – former home to a string of ministers and advisers drawing up the Budget – said on Monday night that tax rises were ‘inevitable’ and would probably total around £26billion.

After raising a record £40billion in tax at last year’s Budget, Ms Reeves said she had ‘wiped the slate clean’.

Following a business backlash, she told the CBI last November: ‘I’m really clear. I’m not coming back with more borrowing or more taxes.’ 

But low growth and higher government borrowing costs have triggered a deterioration in the public finances. 

Sir Keir Starmer, pictured last month, warned Labour MPs on Monday night that the Budget would involve ‘hard and serious decisions’ but insisted they would be ‘fair’

Some experts have blamed the decline, in part, on her first Budget, which levied a £25billion ‘jobs tax’ on employers’ National Insurance.

But Ms Reeves will again try to blame the last Conservative government – and Brexit – for her predicament.

Sir Keir told a private meeting of the Parliamentary Labour Party at Westminster on Monday night that it was ‘becoming clearer that the long-term impact of Tory austerity, their botched Brexit deal and the pandemic on Britain’s productivity is worse than even we feared. Faced with that, we will make the tough but fair decisions to renew our country and build it for the long-term.’

On Tuesday, Ms Reeves will pledge to ‘make the choices necessary to deliver strong foundations for our economy’.

She will add: ‘It will be a Budget led by this Government’s values, of fairness and opportunity and focused squarely on the priorities of the British people: Protecting our NHS, reducing our national debt and improving the cost of living.’

She added that it was important ‘people understand the circumstances we are facing, the principles guiding my choices’.

Reform leader Nigel Farage warned on Monday that Britain could face ‘economic collapse’ within two years as a result of mishandling by successive governments.

In her own speech on Tuesday, Tory leader Kemi Badenoch will urge the Chancellor to cut the bloated benefits bill instead of raising taxes further. 

In her own speech on Tuesday, Tory leader Kemi Badenoch will urge the Chancellor to cut the bloated benefits bill instead of raising taxes further

She will also call on Labour to drop the Employment Rights Bill, warning it will further damage jobs and growth.

Ms Reeves has not appeared in public since this newspaper revealed she had been renting out her south London home for £3,200 a month without the proper licence.

She initially said she was unaware she needed a ‘selective’ licence for the property. But emails between her husband and the letting agency showed the couple were informed about this requirement.

Despite this, Sir Keir rejected calls to launch a formal investigation into the row.