Rachel Reeves is poised to launch the biggest Budget tax raid in history.

The Chancellor’s maiden Budget later this month will involve as much as £35 billion of tax rises – the most on record in cash terms – as she protects her commitment to ending “austerity” and attempts to ensure departments avoid real-terms cuts in spending.

It comes amid growing speculation that proposals will include the first increase in fuel duty for 13 years, as well as a backlash from Cabinet members seeking to stave off spending reductions. Those raising concerns include Angela Rayner, the Deputy Prime Minister, it was reported on Wednesday night.

The Treasury is seeking to fill a gap in the public finances estimated at £40 billion, to cover measures including a string of workers’ pay rises, costs relating to asylum seekers and extra cash for the NHS.

Whitehall sources suggested that virtually all of this money, potentially more than 90 per cent, or over £35 billion, would come through increased taxation rather than spending cuts.

The Chancellor will not raise capital gains tax on second homes or buy-to-lets, but is expected to increase the tax on the sale of shares, The Times reported.

The 20 per cent rate rate levied from the sale of shares is likely to rise by “several percentage points”, the newspaper said.

She is also expected to look at reliefs in the current system.

Final decisions on tax will also depend on how much of a buffer of cash the Chancellor wants to bank if the economy under-performs in future years.

The Treasury was expected to deliver its main proposals to the Office of Budget Responsibility on Wednesday night.

‘Can’t solve problem with spending cuts’

An insider said: “You can’t solve a spending problem with spending cuts.”

Another source said: “We face the problem of paying for the spending pressure that we have inherited (the £22 billion), paying for the spending pressure on departments, and paying for manifesto commitments.

“If you’re trying to avoid implied spending cuts, you can’t do that by making spending cuts. That leaves tax rises.”

A £35 billion-plus tax raid would be the biggest ever recorded in any Budget in cash terms.

It would be beaten only in real terms by Norman Lamont’s £38.5 billion tax-raising budget in 1993, after adjusting for inflation, by lifting levies on energy bills and freezing tax thresholds in a major stealth tax on incomes after one of the worst recessions since the war.

Ms Reeves’s raid would be larger than those launched by Rishi Sunak in 2021, when he put up corporation tax from 19 per cent to 25 per cent as part of efforts to restore the post-Covid public finances, and Jeremy Hunt’s massive stealth tax raid in 2022, when income tax thresholds were frozen for six years.

The Chancellor has so far announced only one benefit cut, ending universal winter fuel allowance for pensioners in a move expected to raise £1.4 billion.

There is speculation that other budgets, such as the welfare bill, will escape virtually unscathed.

Ms Reeves’s plans for departmental spending have none the less provoked anger from her fellow Cabinet ministers, with several writing to Sir Keir Starmer to complain. The Times reported that Ms Rayner was among Cabinet ministers who made their concerns known.

Because some departments such as the NHS and defence have “protected” budgets with faster spending increases, it is believed there will be tough decisions in other areas such as local government, transport and the environment – as well as policing, prisons and the courts.

Ministers ‘can’t see the overall picture’

One government official told the Financial Times: “Ministers and departments feel that what they are being given is very miserable. They are worried about what it means for government ambitions and commitments.

“But of course they can’t see the overall picture — quite how difficult the inheritance really is and the scale of the pressures on tax and borrowing. But it’s very, very difficult for all of them.”

A source in one government department said: “We are still in the middle of negotiations. It’s not surprising that it’s going to be a challenging spending review.

“We are all trying to work together to make the choices as less challenging as possible.”

A Downing Street spokesman said the exchanges are a standard part of the process, and that departments are spelling out their challenges and opportunities.

“We have always said this is going to be a tough budget, and departments are having to make difficult choices,” she said. “These letters are a standard part of the process before budgets.”

One minister said: “It’s only a handful of ministers and it doesn’t do them any favours. It’s bog standard horse-trading.”

Fears of first fuel duty rise since 2011

Meanwhile, speculation was growing that Ms Reeves is planning the first rise in fuel duty since 2011, when it was frozen by then-chancellor George Osborne. She is also widely expected to increase capital gains tax and employers’ national insurance contributions.

Treasury officials want the Chancellor to raise the tax on petrol and diesel, saying that if she does not do so it would force her to find another £5 billion elsewhere.

In recent weeks both Sir Keir and Ed Miliband have refused to rule out an increase in the levy, which has not gone up since 2011. An increase in fuel duty would be hugely controversial as it could be seen as a tax on working people.
Four years ago Ms Reeves, then a backbencher, criticised the then chancellor Mr Sunak for freezing fuel duty.

In March 2020 she wrote on Twitter: “This should have been the greenest Budget ever, but the Tories have chosen to spend £27 billion on new roads and £2.7 billion on yet another fuel duty freeze, compared to just £6 billion on local public transport. They don’t recognise the challenge of the climate emergency.”

On Wednesday night, the Chancellor was put under more pressure by the Resolution Foundation think tank to increase taxes on petrol and diesel cars as part of an effort to promote the purchase of electric vehicles.

But another pressure group, the Road Haulage Association, warned that such a move could slash £430 million from Britain’s national income each year for five years.

Fuel duty used to rise above inflation every year until 2011, when it was frozen by David Cameron’s government, and it has remained frozen ever since.

The levy was cut by 5p a litre by Mr Sunak when he was chancellor in 2022 as motorists were struggling with increased costs in the wake of the war in Ukraine.

Subsequent budgets confirmed the freeze and the levy is now set at 52.9p per litre.

Had it increased every year in line with inflation, it would now raise an additional £19 billion a year for the Treasury.

It is believed Treasury officials are piling pressure on Ms Reeves to cancel the 5p reduction, saying that because petrol prices are now much lower, the justification has gone.