Sir Keir Starmer warns of ‘tough but fair’ decisions in Budget

Rachel Reeves will make “tough but fair” decisions at the upcoming Budget, Sir Keir Starmer has told Labour MPs amid mounting speculation of a potential hike to income tax.

The Prime Minister warned “hard and serious” choices were needed to fix Britain’s financial woes as he sought to roll the pitch for a difficult autumn statement on November 26.

Addressing a meeting of the Parliamentary Labour Party on Monday night, Sir Keir defended the Government’s economic record but claimed the policies of the former Tory government, and the pandemic, had left productivity “worse than even we feared.”

He hit out at his political rivals, saying both the Tories and Reform UK would take the UK back to austerity, indicating that the Budget will avoid deep cuts to public spending.

The Prime Minister laid out three key priorities for the Government: protecting the NHS, cutting national debt and easing the cost of living.

“The Budget will be a Labour Budget built on Labour values,” he told the meeting in Westminster.

“We had the fastest-growing economy in the G7 in the first half of this year, but everyone knows the Budget takes place against a difficult economic backdrop.

“It’s becoming clearer that the long-term impact of Tory austerity, their botched Brexit deal and the pandemic on Britain’s productivity is worse than even we feared.

“Faced with that, we will make the tough but fair decisions to renew our country and build it for the long term.”

He added: “The Tories and Reform would return us to austerity. The Tories produce fantasy figures, but everyone knows they would slash the NHS and our schools. They should never be trusted on the economy again.

“Rather than taking the hard and serious decisions needed to renew this country, Reform’s massive spending cuts will mean cuts to the NHS, which Farage wants to privatise.

“He wants to cut the minimum wage while bringing in giveaways to billionaires. It’s clear where his priorities lie.”

Earlier on Monday, Downing Street repeatedly refused to re-commit to the party’s manifesto pledges, fuelling speculation that its promise to avoid raising income tax looks set to be broken.

Economists at the Institute for Fiscal Studies have already predicted that the Chancellor would need to find £22 billion to restore the £10 billion of headroom she previously left herself against her self-imposed debt targets.

A bigger-than-expected downgrade to productivity could see that figure increase even further, although better-than-expected inflation figures and a slight improvement in some growth forecasts may ease the pressure slightly.

It comes as Ms Reeves is rumoured to be considering a proposal by the Resolution Foundation, a think tank with close links to the Treasury, to raise income tax by 2p on the pound while cutting national insurance by the same amount.

The foundation framed the measure as a “switch” plan that would help to iron out “unfairness” in the system by spreading the tax burden across a wider group, including pensioners and landlords.

The move would be an unambiguous breach of Labour’s election manifesto commitment not to hike income tax, VAT or national insurance on “working people”, which the Government has in recent days declined to say still stands.

Asked on Monday whether the Budget would leave that pledge intact, the Prime Minister’s official spokesman said the Chancellor would “strike the right balance” between funding public services and encouraging growth.

“I think what we’ve said is that the choices we’ll take at the Budget will be led by our values and our determination to build a fairer economy that works for working people and rewards working people,” the spokesman said.

“We will maintain a tight grip on public spending to keep taxes, inflation and interest rates as low as possible.

“We will take the tough but fair choices on tax so everyone, including businesses and the wealthiest, contributes their share to fund our public services.”

The Prime Minister used Monday’s meeting to pay tribute to Lucy Powell, Labour’s new deputy leader, and express his disappointment at the party’s loss in the recent Caerphilly by-election but pledge his determination to deliver change alongside the Welsh Labour Government.

He was also pressed by some MPs to make a commitment on the two-child benefit cap, which ministers have signalled could be lifted, and to go further in slashing red tape for businesses trading with Europe, it is understood.