The Budget will embrace the “harsh light of fiscal reality” but “better days are ahead”, Sir Keir Starmer will say in a speech ahead of Wednesday’s announcement.
The prime minister is expected to warn of “unprecedented” economic challenges but will say the government will “run towards them” as Labour prepares for its first Budget in almost 15 years.
The government is expected to announce a series of expected tax hikes, including a rise in the National Insurance (NICs) rate paid by employers which some claim breaks Labour’s manifesto pledge not to increase taxes for “working people”.
The Conservatives have accused Sir Keir of running a government of “broken promises”.
At a speech in the West Midlands on Monday, Sir Keir will argue that the country faces an “unprecedented” challenge of weak public finances alongside “crumbling public services”.
He will promise to face what he calls “the tough decisions”.
Speculation has been growing about the tax rises the chancellor will announce on Wednesday, with Rachel Reeves claiming there is a £22bn “hole” in the public finances left by the previous government.
Last week, Reeves signalled that businesses would face an increase in National Insurance, when she said Labour’s election pledge not to increase contributions on “working people” related to the staff element, as opposed to the sum paid by employers.
Other than National Insurance for employers, the freezing of income tax thresholds could be extended.
This means more people are “dragged” into paying tax or paying a higher rate and wages rise and cross the thresholds.
The government is also looking at increasing tax on asset sales, such as shares and property, as well as changing its own self-imposed rules on how its debts are measured in order to free up money for spending on infrastructure projects.