Labour raids pensioners... and warns tax hikes ARE coming: Reeves strips most OAPs of winter fuel payments and signals 'difficult decisions' in Budget as she blames Tories for £22bn hole in public finances - but still hands junior doctors 22% pay rise

Rachel Reeves is unveiling doomsday claims about a £22billion hole in the public finances today as she paves the way for tax hikes.

In a crucial Commons statement, the Chancellor accused the Tories of leaving the government's books in an 'even worse' state than she feared.

Pointing to sky-high spending on policies such as the Rwanda scheme, Ms Reeves said the reserve had been 'exhausted' and decisions had been 'ducked'. Asylum system costs were £6.4billion over budget this year, while transport was £1.6billion over.    

She is laying out plans to slash road projects - including shelving a long-awaited tunnel under Stonehenge - and sell off government assets. 

But the intervention has been condemned as a 'con' to soften up Brits for a tax raid in the Budget, expected in October. Inheritance tax and capital gains are viewed as likely targets, after Keir Starmer ruled out moves on income tax, national insurance and VAT. 

And despite the dire warnings Ms Reeves made clear will accept pay recommendations in full - giving the green light for an inflation-busting 5.5 per cent pay rise for public sector workers, at an estimated cost of £8billion.

She also said junior doctors have been offered a package worth a whopping 22 per cent over two years to settle their dispute. Altogether the pay rises will cost the government £9billion this year.

That will spark concerns about fuelling inflation, potentially making it less likely that the Bank of England cuts interest rates this week. 

In her statement Ms Reeves revealed:

The A303 Ston  

Ms Reeves will accuse the Tories of 'covering up the true state of the public finances' before 'running away'.

She is expected to concentrate in the short-term on axing infrastructure projects.

The £1.7billion Stonehenge road tunnel is among the capital projects inherited by the Government that Ms Reeves has concluded are 'unfunded with unfeasible timelines'. The Conservatives' flagship New Hospital Programme is also set to be scaled back.

'Surplus' sites owned by the NHS, Ministry of Defence and Network Rail are all being considered for sale. 

The Chancellor will also announce a fresh crackdown on the non-essential use of external consultants as part of a wider drive to cut down on waste in the public sector. 

A new Office of Value for Money will be established, using existing civil service resources, to cut down on wasteful government spending.

In a round of broadcast interviews this morning, Cabinet Office minister Pat McFadden told Sky News: 'What we have discovered since taking office a few weeks ago is things were even worse than we thought and the previous government was certainly guilty of running away from the situation. Let me give you a couple of examples.

'We were told, for example, that the Rwanda scheme was going to cost £400 million. We have now found that it is £700million, with billions more to be spent in future.

'The government were emptying the country's reserves to pay for other parts of their asylum policy.

'In addition to that, the secretary of state for education had a pay offer for teachers on her desk that nobody told anyone about during the election.'

He added: 'When you take up all of this, and you add it all up, it adds to significant pressures on the budget this year which we have to react to.'

However, the sums raised from cuts are unlikely to come anywhere close to plugging the £20billion funding gap apparently identified in Labour's 'audit'.

Ms Reeves will also be urged to consider clobbering more than 30million drivers by Treasury officials to help plug the gap.

She is expected to look at allowing the 5p fuel duty cut to expire next March.

The 5p a litre fuel duty cut was introduced in March 2022 by then Tory Chancellor Rishi Sunak to ease the cost-of-living burden on families amid soaring oil prices.

But prices at the petrol pumps have since fallen significantly and Treasury officials believe it is time to hike the motoring tax, it is understood.

Ms Reeves will also be asked to consider whether fuel duty should rise in line with inflation for future years.

The previous Tory government froze the Fuel Duty Escalator for 14 years, meaning the levy remained 57.95p a litre between 2011 and 2022 and has been 52.95p since the 5p cut.

Analysis shows the successive freezes have been worth at least £80billion to drivers collectively.

Reversing the 5p cut and allowing the Escalator to rise with inflation would add about £100 to the annual fuel bill of the average driver, of which there are around 33million in the UK. 

It could net the Treasury as much as £3billion to £4billion extra a year in tax receipts. 

Treasury officials have also drawn up plans to equalise capital gains tax with income tax and lower relief on pensions savings for up to 6million higher earners.

Ms Reeves is expected to say today: 'Before the election, I said we would face the worst inheritance since the Second World War.

'Taxes at a seventy year high. Debt through the roof. An economy only just coming out of recession.

'I knew all those things. I was honest about them during the election campaign. And the difficult choices it meant.

'But upon my arrival at the Treasury three weeks ago, it became clear that there were things I did not know. Things that the party opposite covered up from the country.'

The Office for Budget Responsibility (OBR) was set up in 2010 to give independent scrutiny of the public finances.

Gareth Davies, Shadow Exchequer Secretary to the Treasury, said: 'Rachel Reeves is trying to con the British public into accepting Labour's tax rises.

'She wants to pretend that the OBR, established by the Conservatives and whose forecasting was used in all of the last Conservative Governments budgets, doesn't exist in order to make any of what she says believable and just like her books, this announcement is a copy and paste of what has come decades before.

'But her words and actions on supposedly saving the taxpayer money are an insult when she is secretly planning to raise their taxes at the same time.'

Laura Trott, Shadow Chief Secretary to the Treasury, said: 'Having promised 50 times not to raise taxes, the British public will never forgive them when they inevitably do.'