Rachel Reeves will need to hike income tax by at least 2p at her Budget, a major economic think tank has warned. The National Institute of Economic and Social Research (Niesr) warned that the Chancellor is facing a £50 billion black hole in the public finances.

It said that Ms Reeves will likely need to break Labour’s manifesto pledge and increase income tax in her November 26 statement. Niesr said a 2p rise on the 20% basic rate of income tax was expected to be the minimum needed to repair Britain’s battered public finances, raising around an extra £20 billion.

A 5p rise on the 40% higher rate would add a further £10 billion, with around £500 million from a similar hike to the upper band, it added.

The think tank admitted this would hit economic growth but argued the alternatives were worse.

Stephen Millard, deputy director for Macroeconomics, said Ms Reeves would need to make “brave choices”.

He said: “She will likely need to break her manifesto pledge by raising income tax – rather than attempting to fill the gap by messing around with lots of changes to marginal taxes – as this would be the least bad option for the economy.

“A mixture of tax rises and spending cuts is needed to put the UK economy and public finances ‘back on track’, which would in turn help the Government to focus on its mission to deliver higher economic growth and better living standards across the country.”

It comes after Ms Reeves yesterday laid the groundwork for tax hikes in an unusual speech three weeks ahead of the Budget.

She insisted that everyone will “have to contribute” to securing the country’s economic future.

The Chancellor fuelled speculation as she would not commit to Labour’s manifesto promises not to raise income tax, national insurance or VAT.