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Sir Keir Starmer will pledge in his speech on Monday that this week’s Budget will confront the stark reality of the country’s fiscal situation to steer Britain away from a path of decline. However, he is facing mounting criticism that the proposed tax increases will disproportionately impact the “working people” he has promised to safeguard.
Ahead of the fiscal event on Wednesday — a pivotal moment in his premiership — Starmer will outline his commitment to implementing long-term reforms and investments alongside tax hikes and spending cuts to stabilize the public finances.
He will declare, “It’s time we faced the difficult choices head-on,” emphasizing the need for the UK to “confront the stark reality of our fiscal situation so we can unite behind a credible, long-term plan.”
The Budget is anticipated to incorporate up to £40 billion in tax hikes and spending cuts, along with additional borrowing of around £20 billion annually to finance investments in the NHS, schools, green energy, and transportation projects.
However, Chancellor Rachel Reeves is under fire for her proposal to raise employers’ national insurance contributions by as much as £20 billion, a move economists argue will ultimately be passed on to workers through reduced wage growth.
Shadow Chancellor Jeremy Hunt criticized the increase in employer national insurance contributions as a covert way to recoup the £20 billion cut in employees’ national insurance contributions promised before the election.
Paul Johnson, director of the Institute for Fiscal Studies think-tank, described the move as essentially reversing the previous cut.
In 2021, the Office for Budget Responsibility, the fiscal watchdog, stated that while the “statutory incidence of employer NICs is on businesses, we assume the economic impact of the tax is ultimately borne by lower real wages in the medium term.”
Hunt remarked, “It is hardly avoiding a tax increase on working people when the OBR indicates that in the medium term, the entire impact is passed on to employees through reduced salaries.”
In the Budget, Reeves is also expected to extend the freeze on income tax thresholds beyond 2028, pulling more individuals into higher tax brackets — despite Labour’s commitment in its manifesto to shield “working people” from increases in income tax, value added tax, or national insurance.
Education Secretary Bridget Phillipson repeatedly declined to clarify on Sunday whether the tax pledge applied to the entire parliament, while Reeves only stated to The Observer that Britons would not face these tax hikes “the day after the Budget.” Subsequently, Labour officials confirmed that the pledge extended to the entire parliament.
In his speech, Starmer will highlight the historical suffering of working people due to politicians avoiding “honest, responsible, long-term decisions,” emphasizing that “it is working people who bear the brunt when their government fails to deliver economic stability.”
He will assert, “Stability is what enables us to invest and carry out reforms that will maximize that investment.”
Reeves is expected to relax her fiscal rules to inject approximately £20 billion more annually by the end of the parliament, reversing the capital spending cuts planned by Hunt.
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In recent weeks, Reeves has sought to reassure nervous financial markets that she will establish “guardrails” around her new investment plans to demonstrate that projects supported by additional government borrowing will genuinely boost growth.
In his speech, Starmer will prepare the nation for a challenging Budget with tax hikes of up to £35 billion, tempered politically by a pledge that the increased taxes will contribute to rebuilding public services, including the NHS.
He will state, “We must be realistic about our current position as a country. This is not 1997, when the economy was strong but public services were struggling. Nor is it 2010, when public services were robust but the public finances were frail. These are unprecedented circumstances.”
The Conservatives argue that Starmer misled voters about his proposed tax increases, an allegation refuted by the Prime Minister.