RACHEL Reeves has again hinted at tax rises in the autumn as she warned of “tough choices” over how to fund public sector pay rises.

The Chancellor of the Exchequer plans to open the purse strings to give 400,000 teachers and 1.4 million NHS staff an inflation-proof 5.5 per cent pay rise this year.

She insisted that there is “a price tag for not settling” with unions threatening strike action if the hefty increase recommended by wage review bodies is not implemented.

Ms Reeves says the cost – which could amount to £10 billion – could cover any wider “impact on the economy”.

She told the BBC: “I don’t think anyone realised how bad the situation was.”

She added: “There are costs associated with not settling, costs in terms of further strikes and costs in terms of recruitment.”

Ms Reeves said Labour would do things the “right way and make sure the numbers are right”, adding: “(The Tories) weren’t prepared to make tough decisions, they just walked away.”

Meanwhile, Shadow Chancellor of the Exchequer Jeremy Hunt has called for “fiscal discipline”.

He will tell the House of Commons today: “With inflation at two per cent and the fastest growth in the G7, it is unwise for Labour to pretend that things are worse than they thought in order to lay the groundwork for tax rises.”

• MRS REEVES again refused to budge on scrapping the two-child benefit cap, saying she would not commit to the £3bn annual cost without knowing where the money would come from.