Rachel Reeves must raise taxes immediately to plug a fresh £50bn hole in the public finances, according to one of Britain’s most respected economics organisations.

Slowing economic growth, a weak jobs market and the cost of Labour’s about-turns on welfare spending have combined to plunge government finances deeper into the red, the National Institute of Economic and Social Research (Niesr) warned.

The Chancellor is now on course to miss her borrowing targets by £41.2bn, the think tank predicted. If she wants to restore the £9.9bn of headroom maintained since last year’s Budget, Ms Reeves must therefore raise taxes or cut spending by £51.1bn.

David Aikman, director of Niesr, said it was increasingly difficult for the Chancellor to avoid raising taxes on working people if she wanted to maintain her fiscal rules and stick to spending promises.

The forecasts will worry Downing Street given Niesr’s stature. It is Britain’s oldest independent economic think tank and was co-founded by John Maynard Keynes, the British economist who has helped to shape modern Left-wing thought.

Niesr’s economic model is highly respected globally and used by organisations such as the Treasury and the International Monetary Fund. Its president, Sir Paul Tucker, is the former deputy governor of the Bank of England.

The warning comes just a year after Rachel Reeves attacked the Conservatives for leaving an alleged £22bn black hole in the public finances. The Chancellor used this to justify what she claimed was a “once in a generation” Budget that saw her mount a £40bn tax raid.

Ms Reeves claimed the record-breaking tax increase was necessary to fix public finances. However, the measures are widely thought to have backfired – with business confidence plummeting, unemployment jumping and inflation once again rising.

Mel Stride, the shadow chancellor, claimed the black hole was a result of Labour’s “economic mismanagement”.

Niesr’s dire forecast suggests the upcoming Budget could eclipse last year’s – despite the Chancellor repeatedly promising not to repeat tax rises on that scale.

Attempts to cut government spending have so far met with significant backbench rebellions, suggesting Ms Reeves will struggle to deliver significant savings this way.

Stephen Millard, the think tank’s deputy director, added that any move to amend borrowing rules would risk “another Liz Truss moment”. Ms Reeves has insisted her fiscal rules are “iron clad”.

As a result, tax increases appear the most likely way to plug the Budget black hole.

Mr Aikman said the Chancellor “faces an impossible trilemma: it is becoming increasingly difficult to see how the Government meets its fiscal targets, sticks to spending promises, and avoids tax increases on working people. Something will have to give.”

The scale of tax rises required would be equivalent to a 5p increase to the basic and higher rates of income tax, Mr Millard said.

“These are the really hard decisions the Chancellor is going to have to make, if she is going to raise the £50bn,” he said. “Fiddling at the edges is not going to do the job.”

Niesr said the Chancellor faced costly trade-offs. Freezing the income tax thresholds to mount a stealth raid would mean taking more from low-paid workers and pensioners.

Increasing VAT would raise the cost of living for poor households. Higher corporation tax would batter already-struggling businesses. Meanwhile, raiding savers and investors risks undermining future economic growth.

Separate HMRC figures showed almost 2.6 million people will be forced to pay tax on their savings this year, up by over 120,000 from 2024. The average saver who receives a bill will pay £2,300, according to analysis by stockbroker AJ Bell.

Richard Tice, the deputy leader of Reform UK, said Labour would likely be forced to break its manifesto promises not to raise taxes on working people.

“Their poor economic choices since have made it almost inevitable that they’ll have to increase taxes yet again,” he said.

“This Government needs to take immediate action to end the flight of wealthy people from Britain, get a grip of the billions wasted by the Bank of England through quantitative easing and tightening, and end the net zero agenda which is marching this country to financial ruin.”

Mr Stride said: “Labour will always reach for the tax-rise lever because they don’t understand the economy. Businesses are closing, unemployment is up, inflation has doubled and the economy is shrinking. And Labour are refusing to rule out more damaging tax rises on investment.”

Labour backbenchers and the party’s union backers last night seized on the Niesr forecasts to renew calls for a wealth tax.

Jon Richards, the Unison assistant general secretary, said: “A wealth tax on the richest in society would be a sensible first step. New levies on the gambling industry could also be considered, and perhaps an online sales tax. Then global giants like Amazon could help contribute more to the UK economy.”

Richard Burgon, Labour MP for Leeds East, said: “The Government needs to grasp the necessary nettle of redistribution, rather than again choosing the path of unpopular cuts. UK billionaire wealth has more than doubled since 2010 and a wealth tax of 2pc on assets over £10m could raise £24bn a year.

“It’s popular with the public, as well as with an ever increasing number of Labour MPs and would help to avoid decisions similar to the catastrophic winter fuel allowance cuts and disability benefit cuts.”

Jon Trickett, Labour MP for Normanton and Hemsworth, also called on Ms Reeves to bring in a wealth tax.

“The growth of extreme wealth for a few is the direct cause of low incomes for many millions,” he said. “And their failure to pay a fair of share of tax helps explain the underfunding of public services.”

Rachael Maskell, Labour MP for York Central, said: “I have long called for the Treasury to scope out a wealth tax to understand how it could be instituted, and that other more direct taxation can be introduced. But reform must come with support for public services as prevention and early intervention models can reduce spending costs.”

Opposition leaders warned that higher taxes would only make problems worse. Andrew Griffith, the shadow business secretary, said Labour had “achieved a disastrous loop of higher taxes and lower growth followed by even higher taxes.”

Business optimism is already at record lows following Ms Reeves’s £25bn raid on employers’ National Insurance contributions, which came into force in April.

Business groups have urged the Chancellor to rule out further raids on employers, amid fears of even greater damage to the economy. Helen Dickinson, the chief executive of the British Retail Consortium, has warned that taxes are pushing up costs, has warned that higher taxes would “fan the flames” of inflation.

Mr Millard said the situation was urgent. Without action, Britain risks losing credibility among international markets, he warned.

“You would need to raise taxes a chunk now, as a way of signalling that you would raise a little bit more in future. Otherwise, is a promise about something you are going to do in four years’ time credible?” he said.

A Treasury spokesman said: “The OBR will publish an updated medium-term forecast alongside the autumn Budget – we will not speculate on their forecast.

“As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy – which is our focus. Thanks to our planning reforms, the OBR has said that the economy is expected to grow by the end of the decade.”

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