Rachel Reeves has been hit by a jobs slump as she prepares to take a gamble on the nation’s finances with a giant spending spree.

In a blow that makes a mockery of the Chancellor’s claim to have ‘fixed the foundations’ of the economy, official figures showed a quarter of a million jobs have gone since her tax-raising Budget last year.

Experts said it was a ‘painful lesson in basic economics’ for Ms Reeves after she ignored warnings and levied a £25 billion ‘jobs tax’ on National Insurance. The Chancellor will today set out Labour’s spending plans for the rest of the Parliament following a bitter Cabinet battle over how to divide up the proceeds from last year’s Budget.

Last night Ms Reeves admitted that voters do not feel like they have more money in their pockets as Labour prepares to mark one year in office.

But she claimed that turning on the spending taps would ensure ‘working people all over our country are better off’.

Ms Reeves is expected to boast that her new approach will allow Labour to spend a staggering £300 billion more over the next five years than had been planned by the last Tory government.

Ministers have described the spending plans – equal to an extra £8,100 for every taxpayer in Britain – as ‘the end of austerity’. But Shadow Chancellor Sir Mel Stride warned that the scale of the splurge raises the prospect of further tax rises to be announced this year.

‘Rachel Reeves talks about hard choices – but her real choice has been to take the easy road,’ he said. ‘Spend more, borrow more, and cross her fingers.

‘This spending review won’t be a plan for the future – it will be a dangerous gamble with Britain’s economic stability.’ He added: ‘Labour is spending money it doesn’t have, with no credible plan to pay for it. That means more borrowing, more debt, and, inevitably, more tax rises in the autumn Budget.’

Last week, Ms Reeves refused to rule out any further tax increases.

Spending will be skewed heavily towards the NHS in an attempt to cut waiting lists further. Defence is set to be another big winner after Sir Keir Starmer committed to spending 2.5 per cent of GDP by 2027.

Allies of Angela Rayner were last night claiming victory in her bid to secure more cash towards meeting Labour’s target of building 1.5 million new homes by the next election.

The Deputy Prime Minister, who is responsible for housing policy, had a series of bust-ups with Treasury ministers and No 10 over the issue.

The Treasury had proposed a modest increase in the social housing budget from £2.3 billion a year to £2.5 billion. But government sources last night said Ms Rayner had secured a £39 billion settlement over ten years.

The Treasury said it was the biggest boost to social housing in a generation. But the growing cost of servicing the UK’s debt mountain means other areas of spending, including the police, face a budget squeeze in future years.

John O’Connell, chief executive of the TaxPayers’ Alliance, said: ‘The Chancellor is abandoning all economic credibility in order to appease her insatiable Cabinet colleagues.

‘Ministers need to focus on eradicating waste and providing value for money, not pretending that simply throwing more taxpayers’ cash at a problem is the answer.’

In recent days, the Chancellor and Prime Minister have repeatedly claimed that Labour has ‘fixed the foundations’ of the economy, despite rising inflation and cuts to official growth forecasts.

Yesterday’s stark employment figures underline the real-world impact of Labour’s tax and spend approach. They revealed UK payroll numbers have shrunk by 276,000 over the past seven months. In May alone, payrolls fell by 109,000 – the worst month since the pandemic.

Meanwhile the unemployment rate has climbed to 4.6 per cent, the highest in nearly four years.

Experts pinned the blame on Ms Reeves’s £25 billion raid on employer National Insurance, which was announced in the October Budget and took effect in April. Payroll numbers fell every month since the Budget.

Julian Jessop, economics fellow at the Institute of Economic Affairs, a free market think-tank, said: ‘The slump in the number of payrolled jobs in May is a painful lesson in basic economics: if you make it much more expensive to employ people, fewer people will be employed.’ Trade body UK Hospitality pointed out that the impact on jobs had turned out to be far worse than feared.

At the time the tax raid was announced, forecasts from the Government’s fiscal watchdog, the Office for Budget Responsibility, predicted it would cost 50,000 jobs, while Deutsche Bank forecast 100,000 jobs would go.

Kate Nicholls, chief executive of UK Hospitality, said: ‘Losing more than 100,000 jobs across the economy in a month goes far beyond the worst-case scenario predicted by the Government’s own fiscal watchdog, major banks, and countless business groups.

‘We were clear at the time that the changes to NICs were a tax on jobs, and so it is sadly proving.’