Rachel Reeves warns of challenge facing Labour if the party wins ...

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Rachel Reeves has said she is “under no illusions” about the scale of the challenge that lies in wait for Labour if elected after the government adopted two of its policies to fund tax cuts.

The shadow chancellor told the BBC on Sunday that an incoming Labour government would carry out a spending review shortly after entering office but she was unable to rule out possible cuts in public services.

Reeves said she would work “methodically” to identify funding for Labour’s spending plans after chancellor Jeremy Hunt adopted the party’s revenue raising measures of scrapping the non-dom tax regime and extending the oil and gas windfall levy.

“I have to be honest that we’re not going to be able to turn things around straight away. But we will get to work on all of that,” she said.

Her comments came after Hunt announced a 2p cut in national insurance costing £10bn a year in his Budget. Voters remain split over whether they prefer tax cuts or increased public spending.

About 36 per cent of voters would prefer an increase in spending on public services even if they pay more in tax compared with 33 per cent who want the government to prioritise tax cuts, according to pollsters Ipsos.

Tory MPs fear Wednesday’s Budget may do little to move the needle among voters, with some calling it a “non-Buzz Budget”.

Prime Minister Rishi Sunak said on Sunday the government wanted to abolish national insurance entirely in the next parliament to end the “unfair” system of “double taxation” of income tax and national insurance.

In an interview with the Sunday Times, Sunak said he planned to consult on new plans to reduce working-age benefits to help fund further tax cuts.

“We now have almost 2.5mn working age people who have been signed off as unfit to work,” he said.

Labour has said that abolishing national insurance would cost £46bn a year and accused the government of making an unfunded fiscal commitment, which the Tories have denied.

Hunt’s new regime for non-doms — wealthy residents who are deemed to have a permanent home overseas — is expected to generate £3.6bn a year, while the extension of the energy levy will raise more than £1bn in 2028-29, according to Budget documents.

Labour had earmarked revenue from these measures for school breakfast clubs in primary schools and to help fund the net zero transition.

Hunt’s Budget planned for public spending to grow 1 per cent a year in real terms, with spending per capita flat for the rest of the decade.

But because key areas like health have been promised bigger increases, unprotected departments could face real-terms cuts of about 3.3 per cent a year, according to the Institute for Fiscal Studies.

Labour on Sunday also announced that former Bank of England governor Mark Carney and the chief executive of Barclays, CS Venkatakrishnan, would join a new task force to advise on its planned £7.3bn national wealth fund to invest in the decarbonisation of heavy industry.

Over the next three months, the task force will consult investors. Labour wants the fund to “crowd-in” £3 from the private sector for every pound of public investment.