Later today, Keir Starmer will vow to “embrace the harsh light of fiscal reality” as his chancellor, Rachel Reeves, sets out a budget with major tax rises and spending cuts.
The prime minister will deliver a speech in the West Midlands today, defending Labour’s economic strategy as Rachel Reeves prepares to launch a “landmark budget” for her party. On Wednesday, it is expected that she will reveal a sharp rise in capital spending, financed through higher borrowings, tax increases, and a squeeze on departmental budgets.
Officials are concerned about potential backlash from raising national insurance contributions for employers- a move expected to generate at least £8.5 billion- given Labour’s prior commitment during the general election campaign. However, the prime minister will use his speech to get ahead of criticism.
He will remind the public of the Conservatives’ 14 years in power and claim his mission is centred around public services working again.
Sir Keir Starmer will state: “It is working people who pay the price when their government fails to deliver economic stability. They’ve had enough of slow growth, stagnant living standards and crumbling public services.”
He will add: “It’s time to choose a clear path and embrace the harsh light of fiscal reality so we can come together behind a credible, long-term plan. It’s time we ran towards the tough decisions, because ignoring them set us on the path of decline. It’s time we ignored the populist chorus of easy answers [..] we’re never going back to that.”
On Wednesday, Rachel Reeves is also expected to formally announce the government’s 20 per cent VAT tax raid on private school fees, put an inheritance tax on some farms, and impose a larger capital gains tax on share sales, among other economic policies.
In a longer-term move, the chancellor will aim to redefine government debt to allow borrowing of up to an extra £50 billion a year for capital projects by the end of the parliament. However, to reassure the bond markets, she intends to limit increases in borrowing to £20-25 billion more than current estimates.
This is on top of additional funding of £1.4 billion to repair school buildings, the redevelopment of Euston station to complete the high-speed link with Old Oak Common, and two carbon capture sites in the north of England.
Reeves claims her budget will plug a £22 billion “black hole” in public finances “created by the previous government” and adds the economy will benefit from an additional £18 billion to boost public services, including the NHS. For this to be possible, departmental budgets- such as justice, housing, and transport- are expected to be operationally cut for the time being.