Keir Starmer has refused to rule out tax rises in autumn as he faces growing pressure to fill a £50bn shortfall in the government’s finances.
The prime minister defended his record, saying Labour had “stabilised the economy” since it came to power last year and pledged the Budget would make “sure people feel better off” as he tried to head off increasing pressure on the issue.
Leading economists have warned Rachel Reeves that she must raise taxes or tear up her flagship borrowing rules to fill a £50bn black hole left by a combination of Labour U-turns, higher borrowing and sluggish economic growth.
Declining to explicitly rule out raising VAT, income tax and corporation tax, he said: “In the autumn, we’ll get the full forecast and obviously set out our Budget.”
The National Institute of Economic and Social Research (NIESR) – a leading economic think tank – said the chancellor could also look at spending cuts in the autumn Budget as a way to raise the money needed by 2029-30 to remedy a £41.2bn shortfall on her borrowing targets, set out by her self-imposed “stability rule”.
To restore an almost £10bn buffer that the government has maintained since last year’s Budget, the chancellor must therefore raise a total of £51.1bn, they warned.
The NIESR’s report said the chancellor has been left with the difficult task of trying to meet her fiscal rules while fulfilling spending commitments and upholding a manifesto pledge not to raise taxes on working people.
But after a swathe of spending cuts squeezing departmental budgets at the last spending review, tax rises are the more likely option.
The chancellor is under increasing pressure to raise income tax or consider a wealth tax on the rich.
The think tank’s forecast also warned that the poorest 10 per cent of people – amounting to 2.8 million households – have seen their living standards fall 1.3 per cent under Labour, some 10 per cent lower than pre-Covid levels.
On a trip to Milton Keynes, the PM said the Budget would “build on what we’ve done” by focusing on “living standards” and “making sure that people feel better off”.
He said the chancellor’s “focus” would be ” living standards, so that we will build on what we’ve done in the first year of this Government. We’ve stabilised the economy. That means interest rates have been cut now four times. For anybody watching this on a mortgage that makes a huge difference on a monthly basis to how much they pay.
“In the first year, we’ve raised wages as well, both in the private sector plus the minimum wage, which means people have got a bit more money coming into their pocket, and so at this stage that will be set out in the budget, but the focus will very much be on living standards and making sure people feel better off.”
Asked whether he disagreed with economists warning tax rises in the budget would be necessary to raise revenue, the PM said “some of the figures that are being put out are not figures that I recognise.”
