Reeves had been widely expected to hike taxes at the Budget, but her comments in Washington were also notable for explicitly raising the prospect that tax rises could be accompanied by cuts to public spending.
However, many Labour MPs believe that spending cuts in most areas would be politically unviable after the failed attempts at welfare cuts earlier this year, with a welfare overhaul put on ice pending a ministerial review.
The day-to-day budgets of government departments were only recently set for the next three years at June’s spending review, although the government could promise to cut spending in four or five years.
The Conservatives opened up a clear dividing line on the issue at their conference last week, pledging to slash public spending by £47bn a year if they win the next election through cuts to welfare, the civil service and foreign aid.
On Monday, the International Monetary Fund (IMF) said the UK was set to be the second-fastest-growing of the world’s most advanced economies this year.
But the IMF also predicted the UK will face the highest rate of inflation among G7 nations both this year and next, driven by rising energy and utility bills.
Shadow chancellor Sir Mel Stride said the government needed to get a grip on public spending, rather than raise taxes again.
He said: “Be in no doubt, this tax doom loop is down to the Chancellor’s economic mismanagement.
“Under Rachel Reeves we have seen inflation double, debt balloon, borrowing costs at a 27-year high, and taxes up – with more pain on the way in the autumn.”
