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Rachel Reeves will take “tough” decisions on tax hikes and spending cuts, Keir Starmer has warned Labour MPs.

The Prime Minister insisted his Government will take “fair” decisions to renew our country.

But the Chancellor, Ms Reeves, is facing a desperate scramble to claw in more money to fix Britain’s economic woes.

Economists at the Institute for Fiscal Studies have already predicted that the Chancellor would need to find £22 billion to restore the £10 billion of headroom she previously left herself against her self-imposed debt targets.

A bigger-than-expected downgrade to productivity could see that figure increase even further, although better-than-expected inflation figures and a slight improvement in some growth forecasts may ease the pressure slightly.

Sir Keir blamed Brexit and his predecessors in Number 10 for the economic chaos – but hinted at more pain for millions of people.

Speaking to backbenchers behind closed doors tonight, the PM said: “The Budget will be a Labour Budget built on Labour values.

“It will protect public services like the NHS. It will reduce our national debt and improve the cost of living.

“We had the fastest-growing economy in the G7 in the first half of this year, but everyone knows the Budget takes place against a difficult economic backdrop. It’s becoming clearer that the long-term impact of Tory austerity, their botched Brexit deal and the pandemic on Britain’s productivity is worse than even we feared.

“Faced with that, we will make the tough but fair decisions to renew our country and build it for the long term. A Labour government making Labour choices.

“The Tories and Reform would return us to austerity. The Tories produce fantasy figures, but everyone knows they would slash the NHS and our schools. They should never be trusted on the economy again.

“Rather than taking the hard and serious decisions needed to renew this country, Reform’s massive spending cuts will mean cuts to the NHS, which Farage wants to privatise. He wants to cut the minimum wage while bringing in giveaways to billionaires. It’s clear where his priorities lie.”

It comes as Ms Reeves is rumoured to be considering a proposal by the Resolution Foundation, a think tank with close links to the Treasury, to raise income tax by 2p on the pound while cutting National Insurance by the same amount.

The foundation framed the measure as a “switch” plan that would help to iron out “unfairness” in the system by spreading the tax burden across a wider group, including pensioners and landlords.

The move would be an unambiguous breach of Labour’s election manifesto commitment not to hike income tax, VAT, or national insurance on “working people”, which the Government has in recent days declined to say still stands.

Asked on Tuesday whether the Budget would leave that pledge intact, the Prime Minister’s official spokesman said the Chancellor would “strike the right balance” between funding public services and encouraging growth.

But No 10 also warned of “tough but fair” decisions on taxes while insisting action would be taken to keep them “as low as possible”.

“I think what we’ve said is that the choices we’ll take at the Budget will be led by our values and our determination to build a fairer economy that works for working people and rewards working people,” the spokesman said.

“We will maintain a tight grip on public spending to keep taxes, inflation and interest rates as low as possible.

“We will take the tough but fair choices on tax so everyone, including businesses and the wealthiest, contributes their share to fund our public services.”