Key Highlights
- Keir Starmer declines to stand by his manifesto commitments not to raise key taxes at next month’s Budget.
- The Chancellor is widely expected to raise taxes at the Budget on 26 November, following gloomy economic forecasts and a series of U-turns on welfare cuts.
- Ministers have previously reiterated that Labour stands by its tax promises, but the prime minister’s response during Prime Minister’s Questions was ambiguous.
- The government faces a £20bn gap in meeting its tax and spending rules due to a downgrade of productivity predictions by the Office for Budget Responsibility (OBR).
Labour’s Tax Pledge Under Scrutiny
During Prime Minister’s Questions, Keir Starmer’s response to a question about not raising key taxes was notably different from his previous stance. In July 2023, he had confidently stated that the Labour manifesto pledges would be upheld, but by mid-October, his approach had shifted.
Shift in Prime Minister’s Response
Sir Keir Starmer’s refusal to provide a clear commitment on tax hikes has raised eyebrows among both his supporters and opponents. In a recent session of PMQs, he did not repeat the promise not to raise income tax rates, VAT or National Insurance during the upcoming Budget.
Conservative Criticism and Economic Context
Kemi Badenoch, the Conservative leader, seized on Starmer’s ambiguous response. She argued that it demonstrated the inevitability of tax rises under Labour, suggesting that the party was “too weak” to control public spending instead.
The prime minister’s change in stance has come amid broader economic challenges. The Office for Budget Responsibility (OBR) is expected to revise its productivity predictions downward, creating a £20bn shortfall in meeting current fiscal targets. This development has forced the chancellor to reassess her tax and spending policies.
Economic Forecasts and Policy Adjustments
Rachel Reeves, the Labour Party’s finance spokesperson, acknowledged that tax rises were likely at next month’s Budget. However, she defended the government’s actions, citing a “true extent of the damage” done to the economy by the previous Conservative administration.
Reeves cited factors such as Brexit and the mini-budget under Liz Truss in September 2022 as key contributors to economic difficulties. The Labour Party faces a tough balancing act between meeting fiscal targets and maintaining public support, given that breaking manifesto pledges could alienate voters who supported them on tax issues.
Internal Party Divide and Future Implications
The internal debate within the Labour Party highlights the complexities of navigating economic challenges. Some senior figures are privately advocating for a breach of the pre-election promise to raise income tax, arguing that it could generate significant revenue without creating a strong opposition lobby.
However, this approach is viewed with trepidation by others who fear it would undermine trust in Labour’s commitment to fiscal responsibility and could further depress economic growth. The decision will have far-reaching consequences for the party’s standing ahead of future elections.
The upcoming Budget on 26 November will be a critical test of both Labour’s economic strategy and its ability to manage public expectations. As the government grapples with financial constraints, the next few weeks will reveal whether Starmer’s cautious approach prevails or if he opts for more drastic measures.
