SNP ministers may be forced to slash public spending or hike taxes due to UK Budget 'hard choices'

Ms Reeves said “we will all have to contribute” and that “each of us must do our bit” as she hinted at tax rises in her speech at Downing St on Tuesday morning.

She declined to recommit to Labour’s manifesto commitments not to raise income tax, national insurance or VAT.

It comes after the Fraser of Allander Institute estimated a 2p rise in UK income tax could cut Holyrood’s budget by £1 billion due to the fiscal arrangements between Holyrood and Westminster.

The Chancellor took the unusual move of making a speech three weeks before the Budget to prepare the public for what would be in it.

She said: “As I take my decisions on both tax and spend, I will do what is necessary to protect families from high inflation and interest rates, to protect our public services from a return to austerity and to ensure that the economy that we hand down to future generations is secure with debt under control.

READ MORE: Rachel Reeves' tax rises could be the making or death of the UK Government

“If we are to build the future of Britain together, we will all have to contribute to that effort.

“Each of us must do our bit for the security of our country and the brightness of its future.”

Ms Reeves repeatedly declined to confirm she will stick to the manifesto commitment, telling reporters: “We’ve got to do the right things. The problem of the last 14 years is that political expediency always came above the national interest, and that is why we are in the mess that we are in today.”

She said she had been appointed Chancellor “not to always do what is popular, but to do what is right”.

If Ms Reeves does increase the basic rate of income tax, she would be the first Chancellor to do so for 50 years.

Responding to Ms Reeves’ speech, SNP Finance Secretary Shona Robison requested “urgent engagement” with the UK Government on the Budget.

The Scottish budget has been pushed back a month to January due to the UK Budget taking place on November 26.

Ms Robison said: “We are calling on the UK Government’s autumn Budget to deliver more funding for those public services, infrastructure, and cost-of-living support – including by abolishing the two-child limit in universal credit.

“Scotland has been short-changed in the past and we must not be left as an afterthought in the UK Government’s Budget.

“Under the current arrangements Scotland has to wait and see what impact the Chancellor’s decisions will have for us.

“Fundamentally, its only with the powers of independence that we can fully support our public services and deliver a stronger economy that works for everyone.”

First Minister John Swinney called for the UK Government to follow Scotland’s lead on raising taxes shortly before last year’s general election.

READ MORE: What would a UK income tax hike mean for Scotland?

Income tax in Scotland is currently higher for middle and higher earners compared to those living in England.

Pressed by journalists about the forecast £1bn funding gap the Scottish Government would be handed if Ms Reeves does hike income tax, Scottish Labour leader Anas Sarwar accused the SNP and Mr Swinney of "incoherence".

He added: "He is the one that has argued for almost two years now that a Labour UK government should increase income tax.

"He himself doesn't understand the very fiscal framework that he negotiated.”

Mr Sarwar stressed any decisions on tax for the rest of the UK were a matter for the Chancellor, but suggested his "conversations with the Chancellor and the UK Labour government continue" over any potential impact on Scotland.

Speaking in Glasgow, the Scottish Labour leader suggested that SNP ministers at Holyrood have received enough funding to mitigate any knock-on effect of UK tax changes.

He pointed to "£5.2bn of additional money" Holyrood has received since Labour took office last summer, highlighting a £1bn underspend by the Scottish Government Mr Sarwar suggested "would make a huge difference to our public services".

At the same time, Mr Sarwar renewed his vow not to hike income tax for Scots if he becomes first minister next year, and even raised the prospect of cutting tax despite the obvious negative impact on public spending.

He said: "I'm very clear that I think the tax burden in Scotland is too high and I want that tax burden to come down. I'm really clear that we will not increase income tax in Scotland."

Chris Birt, Associate Director for Scotland, Wales and Northern Ireland at the Joseph Rowntree Foundation, warned that “significant cuts to public services would be deeply damaging and unacceptable.”

He said: "Both the Chancellor and the Finance Secretary face trade-offs in managing public finances but these are nothing compared to the stark choices that many in Scotland face daily to make ends meet.

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“If the Chancellor does raise income tax elsewhere in the UK, it's likely that the Scottish Government will be faced with balancing tax rises and cuts to public services.

“In the current context, potentially significant cuts to public services would be deeply damaging and unacceptable.

“With people feeling overlooked and ignored by politicians it is crucial that both Scotland's governments are investing in the things that matter to people like good public services, better homes and reducing child poverty. Ultimately investing in these things today, will build a better future for us all."

Conservative Party leader Kemi Badenoch said Ms Reeves had offered a "laundry list of excuses".

Mrs Badenoch added: "She blamed everybody else for her own choices, her own decisions, her own failures."

Reform UK's deputy leader Richard Tice said: "Rachel Reeves has today confirmed what we all knew - she's going to hammer working people with even more tax rises.

"Instead of cutting waste and spending, deregulating and optimising for growth, we are just getting more of the same."

For the Liberal Democrats, Daisy Cooper said the speech was "pointless".

The FTSE 100 dropped nearly 100 points in the wake of Ms Reeves's speech, although it recovered some of its losses during the day.