Rachel Reeves is set to tax the rich to fill a £30billion black hole in public finances ahead of the budget.
Treasury sources have said the Chancellor will not significantly increase borrowing or cut public spending in this year’s Autumn budget.
The only solution left to plug the hole, which is between £20-£30billion, is to substantially increase taxes.
Sources close to the Chancellor told The Telegraph: ‘She will be fair when asking those to contribute more to rebuild our public services.’
It added that she was prepared to take ‘tough decisions’ and will target those with higher incomes instead of taxing ‘working families’.
‘Borrowing more would put our public finances in jeopardy, saddling future generations with more debt, while a return to austerity would condemn the country to decline,’ they said.
This is the clearest indication so far that she is planning a tax raid on wealthier families.
Despite announcing £40 billion worth of tax rises at last year’s Budget, Ms Reeves has repeatedly refused to rule out a fresh raid this autumn.
Rachel Reeves is set to tax the rich to fill a £30billion black hole in public finances ahead of the budget
It comes as the Chancellor faces increased pressure to scrap the two-child benefit cap and replace it with a ‘taper system’.
The Chancellor is under pressure from both backbench MPs and ministers to ditch the welfare limit at her upcoming Budget.
But Treasury officials are said to be exploring options to replace the limit with a new tapered system instead, amid concerns about escalating costs for extremely large families.
The two-child benefit cap currently prevents parents from claiming Universal Credit or child tax credit for a third or additional child born after April 2017.
It is estimated that scrapping the cap entirely – which is being demanded by both MPs and charities – would cost around £3billion a year.
In his Labour conference speech, Sir Keir Starmer hinted the Government would soon lift the two-child benefit cap.
Asked about reports if she would do so at the Budget, the Chancellor told a Labour conference fringe event: ‘Keir said in his speech today that we will reduce child poverty in this Parliament, but we will set out the policies in the Budget.
‘I think we’ve been pretty clear this week that we can’t commit to policies without us explaining where the money is coming from.’
Adding that there were ‘real financial constraints’ due to persistent inflation, tariffs, global conflicts and increased borrowing costs – along with expected changes to OBR forecasts – she said: ‘I would be the first person to want to find some money down the back of the sofa to pay for lots of different things.
‘But I have to be Chancellor in the world as it is, not in the world as I might like it to be.’
