Tax rises of £20billion needed to avoid return to austerity, Rachel Reeves warned

During Labour's conference, Chancellor Rachel Reeves promised there would be 'no return to austerity' - a policy she labelled a 'destructive' force on public services

Rachel Reeves needs to hike taxes by around £20billion to avoid a return to austerity, a new report warns.

It comes as the Chancellor gears up for Labour's first Budget in nearly 15 years. During Labour's conference last month, Ms Reeves promised there would be "no return to austerity" - a policy she labelled a "destructive" force on public services.

The Resolution Foundation says the cost of cancelling inherited Tory cuts to unprotected departments responsible for everything from prisons to local government would be around £20billion.

In order to stick to her rule of day-to-day spending being covered by tax receipts, the think-tank proposes a range of measures to raise the cash. They include ending inheritance tax reliefs and hiking capital gains - a duty paid by people on the sales of shares and second homes.

Keir Starmer has already vowed not to increase taxes on "working people" such as VAT, income tax, and national insurance.

The Resolution Foundation also urges the Chancellor to consider scrapping the two-child benefit limit - an austerity-era policy blamed for trapping kids in poverty.

Research director James Smith said: “Rachel Reeves says she wants to use her first ever Budget to boost investment and kickstart growth. However, this laudable goal is clouded by a truly dire outlook for the public finances.

"The strain on many public services – from court backlogs and over-crowded prisons to rundown local services – mean that inherited plans for further austerity should be reversed, at a cost of more than £20 billion. Tax rises on that scale would doubtless make for hostile headlines, but are actually par for the course at post-election Budgets."

But yesterday the Chancellor was finally handed a boost, as figures showed the UK economy grew in August by 0.2% - up from no growth in June or July. Ms Reeves said in response to the figures: "It's welcome news that growth has returned to the economy.

"Growing the economy is the number one priority of this Government so we can fix the NHS, rebuild Britain, and make working people better off. While change will not happen overnight, we are not wasting any time on delivering on the promise of change."