Starmer: Budget will ’embrace harsh light of fiscal reality’

The Budget will embrace the “harsh light of fiscal reality” but “better days are ahead”, Sir Keir Starmer will say in a speech ahead of one of the most significant financial statements in recent history.

The Prime Minister will warn of “unprecedented” economic challenges and invite the public to judge him on his ability to rise to them as he sets the tone for Wednesday’s announcement.

He is expected to promise the Budget will “ignore the populist chorus of easy answers” amid a series of expected tax hikes, including an increase to employer national insurance by at least one percentage point.

Referring to the statements announced by New Labour’s Gordon Brown and austerity-era Conservative chancellor George Osborne, Sir Keir will say: “We have to be realistic about where we are as a country. This is not 1997, when the economy was decent but public services were on their knees.

“And it’s not 2010, where public services were strong, but the public finances were weak. These are unprecedented circumstances.

“And that’s before we even get to the long-term challenges ignored for 14 years: an economy riddled with weakness on productivity and investment, a state that needs urgent modernisation to face down the challenge of a volatile world.”

The Prime Minister is expected to say he will not offer the UK’s problems as “an excuse”, adding: “Politics is always a choice. 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 comes amid opposition accusations of hypocrisy over an expected decision to extend a freeze on income tax thresholds introduced under the Tories, and confusion over the Labour Government’s use of the term “working people”.

The party had promised in its manifesto that it would not increase taxes on working people – explicitly ruling out a rise in VAT, national insurance and income tax.

But ministers have since come under pressure to spell out who falls within this term after Sir Keir suggested those who make money from assets such as property would not meet the definition.

Education Secretary Bridget Phillipson sought to offer reassurances that working people would not see higher taxes “on their payslip” as she faced broadcasters on Sunday morning.

But critics have argued that employees will still face a greater burden as the Chancellor is expected to extend the freeze on income tax thresholds, which sees people pulled into paying higher rates through a phenomenon known as “fiscal drag”.

Ms Phillipson acknowledged frustrations over ministers’ refusal to confirm who will be hit by greater levies in the Budget but declined to “speculate” on changes that will come on Wednesday.

Other measures expected in the statement include a cut to the earnings threshold at which employers pay national insurance.

Combined with a hike in the rate of employer contributions, this is expected to raise around £20 billion as Ms Reeves seeks to revive public services and put the economy on a firmer footing.

Some £1.4 billion has been announced already to rebuild crumbling schools, as well as a tripling of investment in free breakfast clubs, £1.8 billion for the expansion of Government-funded childcare, and £44 million to support kinship and foster carers.

Ministers have vowed there will be no return to austerity, but Ms Reeves is understood to have called on Government departments to make efficiency savings of 2% in order to free up “billions” of pounds that would be reinvested in the front line.

The Chancellor will also confirm a change to the UK’s debt rule that will open the door for the Government to spend billions more on infrastructure, such as replacing dilapidated buildings on the public sector estate.

She is expected to target public sector net financial liabilities (PSNFL) as her new measure of debt rather than the current yardstick of underlying public sector net debt.

A shift to PSNFL would give her greater headroom to meet her debt reduction target because it includes a wider mix of state assets and liabilities – notably including expected student loan repayments to offset some of the liability.

Sources have said the Chancellor is seeking to find up to £40 billion in tax hikes and spending cuts in order to avoid a return to austerity in next Wednesday’s fiscal statement.

Ms Reeves has admitted she will raise some taxes, pointing to a £22 billion black hole in the public finances which ministers say was left behind by their Tory predecessors, but has not specified which ones.

Capital gains tax, inheritance tax and fuel duty are among some of the other levers she could pull to raise revenue.

The Prime Minister will say the Budget will be underpinned by a commitment to stability when he speaks on Monday.

“It’s stability that means we can invest, and reform that will maximise that investment,” Sir Keir is expected to say.

“Stability, investment, reform. That’s how we fix the NHS, rebuild Britain and protect working people’s payslips. Delivering on the mandate of change.”

He will challenge critics to offer an alternative to Labour’s plans and explain which public services should be cut instead.

“It’s time we ignored the populist chorus of easy answers… we’re never going back to that,” the Prime Minister will say.

“If people want to criticise the path we choose, that’s their prerogative. But let them then spell out a different direction.

“This is what fixing the foundations and delivering change means. Everyone in this country will benefit from this. Everyone can wake up on Thursday and understand that a new future is being built, a better future.”

Writing in the Mirror, he asked the public to “judge us by whether, in five years’ time, you have more money in your pocket.”

The Tories described Sir Keir’s words as “hollow” and accused the Government of “broken promises” over expected tax rises.

“The Prime Minister has some gall if he thinks the British public will swallow the nonsense he is spewing,” a Conservative spokesman said.

Meanwhile, shadow chancellor Jeremy Hunt has written to the fiscal watchdog accusing it of abandoning “political impartiality” over the publication of a review which reports suggest could be critical of the former Tory government.

Ms Reeves’ opposite number had complained about a report by the Office for Budget Responsibility, to be released alongside the Budget, which is expected to assess the transparency of the last administration’s spending plans.

“I do not believe publishing a review with criticisms of the main opposition party on the day of a budget is consistent with political impartiality,” he said, adding that doing so without “asking for the views” of former Tory ministers would amount to a “political intervention.”

OBR chairman Richard Hughes said the report would “solely concern the institutional relationship between the OBR and Treasury” and address the “adequacy of the information and assurances” provided by the Treasury.

He added the watchdog did not consider it “necessary, or appropriate, given the possible market sensitivity of some of the information contained therein, to provide ministers of the previous government with access to the contents of the report and its conclusions before publication.”