Keir Starmer Suggests Tax Hikes in Upcoming Budget

Keir Starmer has indicated that tax rises may be on the horizon in the upcoming October budget, emphasising the need to make "painful" decisions due to what Labour has identified as a £22bn shortfall in public finances.

Addressing the Nation from No. 10

In his first significant address from Downing Street since becoming Prime Minister, Starmer highlighted the challenges ahead, stating that it will take years to rectify the damage caused by previous Conservative governments. He pointed to "14 years of decline" under their leadership, necessitating tough choices now.

Speaking to around 50 members of the public in a sunny Downing Street garden, Starmer contrasted his address with how the space was used under Boris Johnson, who hosted lockdown-breaking parties there. Despite the bright weather and lively atmosphere, Starmer delivered a sobering message, cautioning that the October budget will include unpopular measures.

Preparing for a Difficult Budget

Starmer warned, "The October budget will be painful. We have no other choice, given our current situation. Those who can afford it the most should shoulder the greater burden, which is why we’re cracking down on non-doms by tightening the rules on non-domiciled tax status."

The Prime Minister acknowledged the difficulty of the situation, adding, "I know this is hard to hear after everything you’ve endured. It’s not where we should be, nor where I want us to be, but we must move beyond the politics of easy solutions that resolve nothing."

Financial Realities and Budget Constraints

Starmer and Chancellor Rachel Reeves have ruled out raising income tax, national insurance, or VAT in the upcoming budget. However, they have admitted that the financial situation is worse than anticipated, necessitating difficult decisions.

Starmer revealed, "In the first few weeks, we uncovered a £22bn black hole in the public finances. And before anyone accuses us of playing politics, let's remember the Office for Budget Responsibility (OBR) wasn’t even aware of this shortfall—they confirmed it in writing. The last government concealed this, and just last Wednesday, we discovered we had borrowed nearly £5bn more than the OBR expected in the past three months alone. These are not political games; these are the facts."

Potential Budget Measures

Chancellor Reeves is considering several options to raise funds in the October budget, including increasing capital gains tax and inheritance tax. She may also adhere to the tight departmental budget limits set by the previous government and alter how debt is measured to exclude the Bank of England.

One of the measures already announced is the termination of winter fuel payments for about 10 million pensioners, a decision that has sparked discontent among Labour MPs. However, Starmer defended the move, saying, "I didn’t want to means-test the winter fuel payment, but it was a necessary choice."

Managing the Political Fallout

Starmer is seeking to mitigate a potential voter backlash from decisions such as cutting winter fuel payments and allowing early release for some prisoners by attributing the need for these actions to the previous government's mismanagement.

During his speech, Starmer shared his experience of dealing with recent riots, where he spent time in the Cobra emergency meeting room at Downing Street, assessing whether there were sufficient prison places for those arrested.

"I was shocked to discover the extent of the damage done to our prisons," Starmer said. "It will take time to fix this. I can’t build a prison overnight."

Addressing Broader Social Issues

Starmer linked the recent riots to the broader crisis in prisons, arguing that the unrest stemmed in part from the perception that there would be no consequences for criminal behaviour. "They saw the cracks in our society after 14 years of failure and exploited them. We’ve inherited not just an economic black hole but a societal one, and that’s why we must act differently."

Criticism from the Left

Starmer’s approach has not been well received by everyone within the Labour movement. Sharon Graham, General Secretary of the Unite union, criticised the tone as "bleak" and urged the government to deliver the change that Labour promised. "We don’t need more excuses about fiscal responsibility or talk of wealth creation. Pensioners and workers should not be pitted against each other; that’s not a choice we should have to make," she said.