Rachel Reeves has said she is determined to “defy” forecasts that suggest she will face a multibillion-pound black hole in next month’s budget, but has indicated there are some tough choices on the way.

Writing in The Guardian, the chancellor argued the “foundations of Britain’s economy remain strong” – and rejected claims the country is in a permanent state of decline.

Reports have suggested the Office for Budget Responsibility is expected to downgrade its productivity growth forecast by about 0.3 percentage points.

That means the Treasury will take in less tax than expected over the coming years – and this could leave a gap of up to £40bn in the country’s finances.

Ms Reeves wrote she would not “pre-empt” these forecasts, and her job “is not to relitigate the past or let past mistakes determine our future”.

“I am determined that we don’t simply accept the forecasts, but we defy them, as we already have this year. To do so means taking necessary choices today, including at the budget next month,” the chancellor added.

She also pointed to five interest rate cuts, three trade deals with major economies and wages outpacing inflation as evidence Labour has made progress since the election.

Speculation is growing that Ms Reeves may break a key manifesto pledge by raising income tax or national insurance during the budget on 26 November.

Read more from Sky News:
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Budget decisions ‘don’t come for free’

Although her article didn’t address this, she admitted “our country and our economy continue to face challenges”.

Her opinion piece said: “The decisions I will take at the budget don’t come for free, and they are not easy – but they are the right, fair and necessary choices.”

Yesterday, Sky’s deputy political editor Sam Coates reported that Ms Reeves is unlikely to raise the basic rates of income tax or national insurance, to avoid breaking a promise to protect “working people” in the budget.

Sky News has also obtained an internal definition of “working people” used by the Treasury, which relates to Britons who earn less than £45,000 a year.

This, in theory, means those on higher salaries could be the ones to face a squeeze in the budget – with the Treasury stating that it does not comment on tax measures.

In other developments, some top economists have warned Ms Reeves that increasing income tax or reducing public spending is her only option for balancing the books.

Experts from the Institute for Fiscal Studies have cautioned the chancellor against opting to hike alternative taxes instead, telling The Independent this would “cause unnecessary amounts of economic damage”.

Although such an approach would help the chancellor avoid breaking Labour’s manifesto pledge, it is feared a series of smaller changes would make the tax system “ever more complicated and less efficient”.

Here are my rolling assumptions for the shape of the budget on 26 November, which I will update as the date draws closer.

It sets out why there is a black hole – and what might fill it, with greater confidence about the former. Note the Treasury has not yet received the final forecasts.

Some of the suggestions and assumptions have been drawn up with the help of the Resolution Foundation, but the judgements are mine.

The size of the black hole

£10bn – Forecast downgrade, comprising of lower future productivity offset by upgrade to wage growth

£2bn-£4bn – Debt interest costs, depending on the window picked by the Office for Budget Responsibility

£10bn – Existing policy turns: winter fuel allowance, welfare/PIP U-turn, fuel duty freeze rollover

£5bn – More spending on lifting two-child benefit cap, help for energy bills and also for NHS England redundancy payments

£5-£10bn – Extra headroom

Total: £32-£39bn

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How could Rachel Reeves fill it?

£5bn – Reducing unallocated departmental spending in 2029/30

£8bn – Freezing personal allowance

£4bn – Close capital gains tax loopholes on people moving abroad and after death

£2bn – Higher rate council tax band

£2bn – Get Limited Liability Partnerships to pay national insurance

£1-£2bn – Higher gambling taxes

£1bn – Raise higher rate income tax

Total: £23bn

How to fill the rest?

One big measure or lots of little measures. The Resolution Foundation has explored putting up income tax and simultaneously reducing national insurance.

This means for most employees their tax bill doesn’t change. But the self employed are paying more and pensioners pay more, along with landlords who pay more because income tax is paid on rental income not national insurance. This raises £6bn.

Parliament’s spending watchdog has asked the Crown Estate to explain the rationale behind Prince Andrew’s “peppercorn” rent at Royal Lodge.

The Public Accounts Committee (PAC) has written to the Treasury and the Crown Estate after raising concerns over the value for money of the prince’s living arrangements.

The King‘s team is said to be in talks with his brother about leaving the property voluntarily following renewed controversy over his links to the late paedophile financier Jeffrey Epstein.

Andrew signed a 75-year lease in 2003 after paying an initial down payment of £1m and spent £7.5m on renovations as part of the agreement. He lives there with his ex-wife, Sarah Ferguson.

“Peppercorn rent” is a legal term used in leases to show that rent technically exists, so the lease is valid, but it’s nominal, often literally £1 a year or just a symbolic amount. In practice, it means the tenant pays no rent.

In a letter published on Wednesday, PAC chairman and Tory MP Sir Geoffrey Clifton-Brown, said: “There is considerable and understandable public interest in the spending of public money in relation to Prince Andrew, which in part stems from the fact that he is no longer a working Royal and from serious and disturbing allegations made against him.”

He asked “that you write to us providing an update on the status of, and rationale for, the lease”.

Prince Andrew gave up his titles ahead of the publication of the posthumous memoirs of Virginia Giuffre, who accused the prince of sexually abusing her as a 17-year-old. He has strenuously denied the allegations.

Criticism has now turned to the 30-room mansion in Windsor he has lived in effectively rent-free since 2003.

Sir Geoffrey said the Crown Estate has a duty to manage its land “according to the best consideration of money or money’s worth which in their opinion can be reasonably obtained”.

Read more:
Where could Prince Andrew move to if he leaves Royal Lodge?
No simple solution to problem of Prince Andrew and Royal Lodge

He went on: “We are therefore concerned as to whether the lease arrangements for Royal Lodge are, in light of recent developments and changes in the responsibilities of Prince Andrew, achieving the best value for money.

“They must also be justifiable in comparison to other options for the use or disposal of the property.

“It is also a matter of concern to the committee that the terms of the lease, including those relating to maintenance, are being effectively enforced to maintain the value and character of this nationally important royal residence.”

He has requested a response on or before 28 November, and said the committee will then decide if a public evidence session should be held.