Rachel Reeves was accused of inventing a “bogus” £40 billion blackhole to justify hammering taxpayers in her first budget.

Prime Minister Sir Keir Starmer and Chancellor Rachel Reeves (Image: POOL/AFP via Getty Images)

The Chancellor is planning tax hikes to cover a shortfall in the public finances nearly double the amount she first claimed was needed.

Experts said Rishi Sunak’s election warning that Labour would mean a £2,000 tax bombshell was “looking pretty bang on”.

Tories said accusations about the gap in the finances is a “poor attempt” to justify brutal measures Labour had been planning all along.

Shadow Treasury minister John Glen said: “This supposed blackhole is fundamentally a product of Labour’s own decisions, decisions they are refusing to take ownership for.

“During the election, we publicly called out Labour’s planned profligacy.

“We warned that many unfunded spending commitments would run into the tens of billions of pounds.

“We made clear that it would be the public that would have to pay the price for this.

So once again we are seeing Labour talk up a blackhole but like all of their claims that have come before, it is bogus.

“The public should not swallow any of this latest nonsense, and see it instead for what it truly is – another poor attempt to justify the budget they have been planning all along that will be deeply damaging for growth, for investment, for our economy and for the public’s purses.

Three weeks after the election, Ms Reeves announced she had found a £22bn shortfall and said she was axing the winter fuel allowance to save £1.4 billion.

Labour had failed to commit to keeping the payment in its election manifesto despite doing so in previous elections.

The Chancellor told ministers in a Cabinet meeting on Tuesday that the £22bn figure would only “keep public services standing still”.

Instead, £40bn is now said to be needed to plug to protect key departments from real-terms cuts and put the economy on a firmer footing.

Former Treasury adviser Rupert Harrison said Mr Sunak’s election campaign claim that Labour would put up everyone’s taxes by £2,000 is “looking pretty bang on”.

He added. “The cynicism of Labour’s election campaign is quite something. Transparently obvious that the plan was always to put up taxes to pay for higher public spending, they just weren’t willing to campaign on it.”

Institute for Fiscal Studies chief Paul Johnson said that finding £40bn from tax hikes alone would be “extraordinary” and suggested the Government would eventually need to target income tax if it went down this route.

“If we get tax rises on that scale, that really will be extraordinary – I mean, unprecedented,” he said.

“Forty billion pounds is a big number, you can get there relatively easily actually in terms of the scale of additional spending that will be required down the line.

“Some of that can be covered by slight changes in the fiscal rules, some of that will be covered by some of the tax rises the party is already intending.”

But he added that a “significant” amount would still be left unaccounted for even after these measures.

“If they’re looking for £20 or £30 billion of tax rises, in the end, they will have no choice but to do something with income tax,” he said.

The government is looking at increasing employer contributions on national insurance – a move critics claim is a breach of Labour’s manifesto.

Chief Secretary to the Treasury Darren Jones said the Budget would be “the start of the period of change” promised by Labour but warned of “hard” times ahead.

He said: “We will not be returning to austerity and we will present an honest set of spending plans that deal with the £22 billion black hole that we inherited from the previous Conservative government.

“That will be hard, but it’s the right thing to do and it’s the start of the period of change under this Labour Government that will see better public services over the years ahead.”

Downing Street denied that Sir Keir Starmer had given the public the wrong impression about the scale of tax rises that would come under Labour.

Asked whether the Prime Minister had misled voters, his press secretary said: “No. So we stand by our commitments in the manifesto, which was fully funded.

“We were honest with the British public, both during the election and since, about the scale of the challenge that we would receive.

“Then, of course, one of the first things the Chancellor did when we came in was do an audit of the books and found a £22 billion black hole that the previous government lied about and covered up.

“So that’s why we have continued to be honest with the British people that there are going to be difficult decisions in this Budget, and that’s because of the mess that the Conservatives left the economy in.”

It comes as new figures released on Wednesday showed inflation dropped below the Bank of England target rate last month for the first time since April 2021.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation fell to 1.7% in September, from 2.2% in August.

A Treasury spokesperson said: “We do not comment on speculation around tax changes outside of fiscal events.”