Rachel Reeves is ‘planning to raise taxes and cut spending’ in October budget after gov borrows £3bn more than forecast

RACHEL Reeves faces being plunged into a tax-rising and spending squeeze Budget nightmare as borrowing last month jumped £3 billion higher than predicted.

The Chancellor is walking a financial tightrope ahead of the October showpiece with the overshoot down to the cost of public services and benefits.

She is now considering raising more cash from capital gains tax and inheritance tax and pushing ahead with cuts to some Whitehall departments.

The backdrop of the UK economy growing by 0.6 per cent between April and June are not expected to soften the blow of painful action.

Official figures show borrowing in the financial year to July was £51.4 billion which was the fourth highest for the period since records began in 1993.

But the figures don’t take into account the most recent public sector pay rises when most NHS staff, teachers and military received pay rises of around 5.5 to 6 per cent, costing £9 billion.

Ms Reeves has already accused the Tories of a “cover-up” saying they hid a £22 billion funding shortfall she needs to plug.

The unexpected increase in borrowing now means the controversial two-child benefit cap costing up to £3 billion won’t be abolished.

It comes after Minister stripped 10 million pensioners of the winter fuel allowance.

Treasury Minister Darren Jones insisted that the public expect the government to get public spending “back under control” despite a backbench rebellion on child poverty.

He added: “That means that we have to make very difficult decisions that in our hearts we wouldn’t want to have to make, and that includes on the two-child cap as well.”

He vowed that Ministers will stick by their election pledge not to raise national insurance, income tax or VAT.

Alex Kerr, from Capital Economics, said: “We think that she will look to raise an additional £10bn a year via higher taxes in the Budget and increase borrowing by around £7bn a year.”

Isabel Stockton, from the Institute for Fiscal Studies, said: “The early signs are that better-than-expected growth figures won’t be enough save Rachel Reeves from tough choices in her first Budget on October 30.”