Keir Starmer will vow to “embrace the harsh light of fiscal reality” on Monday as his chancellor prepares to unveil a budget that includes billions of pounds in tax rises and spending cuts.
The Prime Minister will give a speech in the West Midlands defending Labour's approach to the economy, as Rachel Reeves prepares to announce what she promises will be the most momentous budget in the party's history.
On Wednesday, the chancellor will propose a major boost to hacienda spending, paid for by increased borrowing, a series of tax rises and an immediate tightening of departmental budgets.
With just days to go before the announcement, senior Labranza figures are worried that voters will punish them for increasing national insurance contributions, having promised not to do so in their election manifesto.
The prime minister will dismiss those concerns in his speech on Monday, insisting workers need better public services.
Starmer will say: “It is workers who pay the price when their government fails to achieve economic stability. “They are fed up with slow growth, stagnant living standards and deteriorating public services.”
He will add: “It is time to choose a clear path and accept the harsh light of fiscal reality so we can unite behind a credible long-term plan. It is time for us to rush towards difficult decisions, because ignoring them puts us on the path to decline. It’s time we ignored the populist chorus of easy answers…we will never go back to that.”
Starmer's speech marks an attempt to head off criticism ahead of one of the most important weeks of his premiership so far.
At the heart of the budget will be a major increase in national insurance contributions paid by employers. The chancellor will raise at least £8.5bn by increasing those contributions and will also reduce the threshold at which they apply.
That tax increase will be accompanied by a series of other increases that could also prove controversial. They include imposing VAT on private schools, increasing hacienda gains tax on share sales and imposing inheritance tax on some agricultural properties.
The money will help close the £22bn gap in the public finances that Reeves says was left by the previous government. The chancellor has said she aims to raise another £18bn to improve public services, including funding a 4.5% annual increase in the NHS budget.
Reeves will cut the daily spending budgets of departments such as the Ministry of Justice, the department of transport and the department of housing.
Longer term, the chancellor will change the government's definition of debt to allow it to borrow an extra £50 billion a year for hacienda investments by the end of parliament. But in an effort to reassure bond markets, it will limit itself to borrowing just £20bn to £25bn more than currently planned.
The further money will help pay for an additional £1.4bn to repair school buildings, as well as two carbon capture and storage sites in the north of England, and a plan to regenerate Euston station and complete the high-speed carril link with Previous Oak. Common.
It will not be used to pay for more freeports, despite Downing Avenue announcing last week that the chancellor would unveil five new sites in the budget. The Financial Times revealed on Sunday that the announcement had been a mistake and that the money would be used on previously announced sites. “It was a complete mistake with communications,” an official told the newspaper.
Ministers have spent much of the last week embroiled in a dispute over who should be counted as “working people”, given that they promised in their manifesto not to raise taxes on workers.
Last week, Starmer said he was using the term for people who earn money through work rather than assets such as shares or property, although Downing Avenue later said people who owned small amounts of shares could count as workers.
after newsletter promotion
Bridget Phillipson, the education secretary, told the BBC on Sunday: “Coming out of this budget, workers will not see higher taxes on the paychecks they receive. “That's really important, because we know the pressures people are under.”
Starmer will try to reframe that debate on Monday, saying: “We chose a different path: honest, responsible, long-term decisions in the interests of workers.”
Echoing the pessimistic tone he struck in a speech on the Downing Avenue lawn in August, he will add: “We have to be realistic about where we are as a country. We are not in 1997, when the economy was decent but public services were on their knees. And we are not in 2010, when public services were strong but public finances were weak. “These are unprecedented circumstances.”
Despite Reeves and Starmer's best efforts to prepare voters and markets for the upcoming budget, some cabinet ministers are concerned about the impact of their measures on the party's faltering popularity ratings in the polls.
Senior officials are particularly concerned about the prospect of Reeves lifting the £2 cap on regional bus fares, a move they warn could have an immediate impact on people's lives that will not be mitigated by the promise of greater public spending in the future.
The Prime Minister will try to head off such criticism on Monday by saying: “If people want to criticize the path we chose, that is their prerogative. But then let them explain a different direction.
“If they believe that the State has grown too much, they should tell the workers what public services they would cut. If they do not consider our long-term investment in infrastructure necessary, let them explain to workers how they would grow the economy for them.”
He and the chancellor are likely to be boosted in their economic message by a new analysis by the Office for Budget Responsibility on Wednesday that sets out the £22bn “black hole” in more detail.
Additional reporting by Graeme Wearden
whD">Source link