Britain must cut spending on welfare benefits or face a miserable cycle of repeated tax rises every year, the world’s largest bank has warned.

In a warning shot ahead of next month’s Budget, JP Morgan said Rachel Reeves should focus on tackling surging spending on the rising number of pensioners and workless young people – rather than tinker with repeated tax rates – to fix the UK’s finances.

Karen Ward, from JP Morgan Asset Management (JPAM) said: “What really frustrates me about the whole conversation about the UK Budget is our problem in spending. If we were not willing to tackle the long-term structural problems we have in spending, we’re going to be talking about tax hikes every year. I think that’s miserable.”

Ms Ward, in part, blamed the state pension triple lock – which promises to increase pensioners’ income by at least 2.5pc every year – for Britain’s gloomy finances.

“Our population is ageing, but we promise to ratchet up their pension by the highest possible amount every single year,” she said.

The triple lock has already proved three times costlier than first anticipated, according to the Office for Budget Responsibility. Pensioner spending accounts for about half of Britain’s £342bn welfare bill.

Ms Ward, who has advised the two former chancellors Philip Hammond and Jeremy Hunt, also highlighted the blight of growing levels of unemployment for young people. “We’ve got an increasing number of people who aren’t entering the working force,” she said.

It comes as the number of young people not in work, education or training is poised to surpass one million for the first time in more than a decade.

The inability to tackle welfare spending pressures is why investors charge more to lend to the UK than rival nations, she added.

It echoes warnings from Barclays and the Institute for Fiscal Studies that Britain must cut welfare to regain trust with gilt investors.

“The gilt market knows our problems. There is a real risk premium in the gilt market, because it knows the political difficulties the frontbench are under in getting the backbench to allow them to do sensible policy,” Ms Ward said.

“We’ve got to have as a nation a conversation about how we’re going to get spending under control. Fiddling around with all the different tax rates, we’re all missing the point of what our underlying problem is.”

The warning to Ms Reeves, who faced a backbench rebellion over plans to cut the welfare bill, comes ahead of a difficult Budget on Nov 26.

The Chancellor could be forced to raise taxes by more than £30bn, approaching her record £40bn tax-raising Budget last October.

Budget speculation has, in recent weeks, been overshadowed by increasingly alarming warnings from the Bank of England and the International Monetary Fund of an AI bubble threatening a financial crisis.

However, the world’s largest investment bank said such warnings are overdone.

Asked whether he was not concerned about a bubble in financial markets, John Bilton from JPAM said: “No, broadly speaking.”

He added: “I must confess, I like it when there’s concern. Equity markets climb a wall of worry. We’ve heard it written, spoken many, many times, and why should this time be any different in that regard?

“Of course, people are going to sound warnings, and yes, this is a bull market that’s run a long way. But I think that if we actually look at the cash generation and what’s being invested and built, the underlying secular shifts and the drivers of the economy… We’ve got to be aware of risks, but I think we’ve got to be careful not to overstate them as well.”

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