Rachel Reeves ordered a review by Treasury officials that could pave the way for autumn tax rises as she warned that Britain is facing the worst public finances since the Second World War.
The Chancellor has asked civil servants to compile a dossier on the current state of play over the coming weeks, and will present her analysis to MPs before the summer recess.
It is likely to trigger fears that Labour is laying the groundwork for up to £15bn of tax rises in its first Budget, going far beyond anything proposed in the party’s manifesto.
However, Ms Reeves appeared to rule out a raid on banks’ reserves of the kind suggested by former prime minister Gordon Brown.
In her first speech as Chancellor, she said that Labour has inherited the “worst set of circumstances since the Second World War.”
Ms Reeves said: “I have repeatedly warned that whoever won the general election would inherit the worst set of circumstances since the Second World War.
“What I have seen in the past 72 hours has only confirmed that our economy has been held back by decisions deferred and decisions ducked, political self-interest put ahead of the national interest. A government that put party first and country second.”
Ms Reeves said that she had instructed civil servants over the weekend to make an assessment of the public finances “so that I can understand the full scale of the challenge”.
In comments that will lead to speculation of tax rises, Ms Reeves said that previous governments had been unwilling to make the “difficult decisions to deliver growth”. She added: “I will not hesitate.”
Economists have warned that the new Labour government will likely have little choice but to introduce tax rises to rebuild struggling public services.
In the run up to the election, Paul Johnson, director of the Institute for Fiscal Studies (IFS), criticised all parties for a “conspiracy of silence” in the manifestos over the true scale of the economic and fiscal challenges facing the new administration.
Analysts at the investment bank Citi have said they expect a package of tax increases in the autumn worth around £15bn.
The IFS has warned that wealth taxes, such as inheritance tax and capital gains tax, are one of the few options left on the table for a Labour government.
On the campaign trail, Labour ruled out increases to income tax, National Insurance, the headline rate of corporation tax and VAT, which combined make up around three quarters of the Treasury’s tax take.
She has also come under pressure to tax interest paid to banks on reserves that they are required to deposit with the Bank of England. Mr Brown has suggested that introducing a tax could raise £1.3bn.
However, Ms Reeves said: “I’ve got no intention on changing the way the reserves are treated and the interest paid on those reserves.”
Kickstarting economic growth is the first of Prime Minister Keir Starmer’s five key missions for his new Labour government and he has promised to secure the highest sustained growth of any G7 economy.
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