Starmer declines to rule out manifesto-busting tax rises in Budget

Sir Keir Starmer has declined to say he would stand by Labour’s manifesto pledge not to raise VAT, income tax or national insurance in next month’s Budget as he cited a grim economic backdrop.

The Prime Minister said the Government will “lay out our plans” at the November 26 statement, as he sought to blame the previous Tory government for worse-than-expected productivity forecasts from the Office for Budget Responsibility (OBR) fiscal watchdog.

He has previously said the commitment Labour made to voters before the 2024 general election “stands”, but failed to repeat that assurance in the Commons and his press secretary also avoided using the phrase.

Sir Keir also refused to rule out extending the freeze on the personal tax allowance threshold, which drags more earners into paying income tax.

His remarks will fuel expectations that Rachel Reeves’ Budget will involve further major tax rises as she seeks to close a multi-billion pound gap in her plans.

Conservative leader Kemi Badenoch challenged Sir Keir during Wednesday’s Prime Minister’s Questions over his refusal to rule out hiking certain taxes on working people, asking “what’s changed in the past four months?”

The Labour leader replied that no prime minister or chancellor would ever set out their plans in advance.

He continued: “I can say this, Mr Speaker, because the figures on the productivity review that’s being undertaken, this is a judgment on their record in office.

“Those figures are now coming through, and they confirm that the Tories did even more damage to the economy than we previously thought.

“We will turn that around. We’ve already delivered the fastest growth in the G7 in the first half of this year. Five interest rate cuts in a row, trade deals with the US, EU and India.

“They broke the economy. We’re fixing it.”

He also told MPs that “retail sales are higher than expected, inflation is lower than expected, growth has been upgraded this year, and the UK stock market is at an all-time high”.

“The Budget is on November 26 and we will lay out our plans, but I can tell the House now that we will build a stronger economy, we will cut NHS waiting lists and deliver a better future for our country.”

The Prime Minister evaded a question on whether he could guarantee there would be no extension to the freeze on the personal allowance threshold.

He noted that the freeze was introduced by the Conservatives. It is due to end in April 2028.

Mrs Badenoch said: “If you work, they tax you more. If you save, they tax you more. If you buy a home, they tax you more. None of these taxes were in the manifesto, which he had four years to prepare.

“He is raising taxes because he is too weak to control spending. He’s blaming us. He’s blaming the OBR. Last week, they were blaming Brexit.”

The Institute for Fiscal Studies (IFS) warned earlier this month that Ms Reeves could need to find £22 billion of tax rises or spending cuts if she is to restore the £10 billion of headroom she left herself against her debt targets in the spring.

That gap is the result of higher borrowing costs, more persistent inflation and weaker growth, along with spending commitments such as partially reversing the cut to winter fuel payments and watering down plans to cut welfare.

Ms Reeves will hope that better-than-expected inflation figures and a slight improvement in some growth forecasts will help ease the pressure.

But the gap could be even bigger than feared, following media reports that the OBR is preparing to downgrade its productivity forecasts by 0.3 percentage points.

Each percentage point downgrade means the Chancellor needs to find around £7 billion to meet her plans, and the IFS forecast suggested a downgrade of only 0.2 points.

This could leave Ms Reeves with a gap of almost £30 billion, even before she tries to pay for the expected abolition of the two-child benefit cap.

The pound fell sharply on Wednesday following reports that the OBR had cut its productivity forecast, due to be unveiled in the Budget.

Sir Keir’s press secretary declined to say the Labour manifesto still “stands” on not raising VAT, income tax or national insurance.

She told reporters: “The Budget is on November 26. We’re still waiting for the OBR’s final forecasts and we’re not going to pre-empt the Budget.”

Pressed on whether it was fair to link the change in stance to a larger-than-expected productivity gap, she said: “The productivity performance we inherited from the previous government was too weak.

“As the Prime Minister set out, the inheritance that we received from the last government was even worse than we all previously thought.

“Their disastrous austerity approach, their botched Brexit deal and Liz Truss’s borrowing binge did serious damage to the economy, and it’s fallen to this Government to clean up their mess.

“And that’s why at the next Budget, there’ll be no return to the austerity that broke the country, no return to the instability of their mad borrowing sprees and an end to the low-growth trap that has squeezed living standards for working people.”

Liberal Democrat Treasury spokesperson Daisy Cooper said: “People up and down the country will be incredibly worried by what looks like yet another U-turn from this Government.

“Families should not be expected to fill the black hole that’s been blown in our economy by the Conservatives’ nightmare Brexit deal and the current Government’s failure to turn things around.

“Many households will now be tightening their belts even further, fearing more tax hikes to come in the weeks ahead.

“The best way to raise money for public services is by fixing our broken trading relationship with the European Union, which would grow our economy and bring billions into the public purse.”