Ms Reeves and the Prime Minister denied the NI tax increase would breach commitments not to increase income tax, NI or VAT on “working people” because it was aimed at employers rather than employees. However, the definition of “employee” is coming under increasing scrutiny.

On Sunday, Education Secretary Bridget Phillipson refused to say whether a small business owner earning £13,000 a year was an “employed person” who should be protected from tax rises.

He said Labour’s definition of a working person is “someone whose main income comes from going to work every day”.

Ms Phillipson said this would apply to Cabinet ministers who “don’t see higher taxes” when they look at their payslips after the Budget on Wednesday.

Asked whether the same protections would apply to small business owners who derive their income from profits, he declined to provide any assurances, calling the question “hypothetical.”

But speaking to Trevor Phillips on Sky’s Sunday Morning programme, Lord King, who as governor of the Bank of England was Ms Reeves’s boss when she was an economist, said: “This whole debate about not taxing working people is a terrible delusion. Really.

“Taxes are paid by people, not by companies or institutions, it ultimately comes down to what people can spend, and however you define it, you can raise a significant amount of money for most people by raising taxes. O. But most people will have to pay higher taxes.”

He also warned that the proposals meant companies were less likely to “accept wage demands” and “are likely to be less keen to create new jobs”.

Inheritance tax raid puts jobs at risk

Andrew Haldane, the bank’s former chief economist, said the distinction between workers and non-workers “doesn’t really make sense”.

“The reality is that it is unlikely that over the course of this Parliament almost all of us, whether we call ourselves working people or not, will not be paying a little more tax to plug that gap,” he said.

A crackdown on inheritance tax cuts could cost up to 400,000 jobs, triggering a wave of liquidations of family businesses, according to analysis by the Confederation of British Industry (CBI).

The industry group has warned the Chancellor could scrap business relief on inheritance tax, which allows business assets to be transferred tax-free on the death of their owners, leading to the closure of hundreds of thousands of businesses.

A survey by the CBI for lobby group Family Business UK estimated that 6 per cent of family businesses would be liquidated to avoid a huge tax bill equivalent to 347,000 UK companies upon the death of their owners. One-third of family businesses also plan to lay off employees if they are affected by taxes.

In response to Mr Hunt, the OBR said the review’s findings would concern only the institutional relationship between the OBR and the Treasury and that it would not give advice to ministers or comment on ministers’ conduct or decisions. He said he could not disclose his report to Conservative Party ministers on the grounds that some of the information might be market sensitive.

Conservative leadership candidate Robert Jenrick said: “Labour appears to be in cahoots with the OBR to justify massive tax increases on the British public. “The OBR should not come to the aid of this Government that is lying tooth and nail to the British public.”