Keir Starmer has sought to play down warnings that the government will be forced to raise taxes this autumn and said some of the figures being circulated “are not ones I recognise”.
The prime minister was responding to forecasts from the National Institute of Economic and Social Research (NIESR), which projected a shortfall of up to £51bn in the public finances, given a number of factors had knocked the chancellor’s plans to stay within Whitehall spending limits, including higher debt interest payments and U-turns on welfare spending cuts.
NIESR said “moderate but sustained” tax rises would be needed in the autumn budget for Rachel Reeves to overcome the deficit of £41.2bn and then restore a near £10bn buffer in the current budget or be forced to use harsh cost-cutting measures in the autumn statement.
Speaking during a visit to Milton Keynes, Starmer disagreed with the economists’ warnings. “Some of the figures that are being put out are not figures that I recognise, but the budget won’t be until later in the year – that’s when we’ll have the forecast and set out our plans.”
He added the government’s focus would remain on raising living standards and he sought to reassure voters they would “feel better off” under Labour.
“That means more money coming into people’s pockets in the first place through better wages, and bearing down on costs like mortgages and other pressures on families,” Starmer said.
“In the autumn, we’ll get the full forecast and obviously set out our budget,” he added. “The focus will 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.”
Prof Stephen Millard, NIESR’s deputy director for macroeconomics, said: “Things are not looking good for the chancellor, who will need to either raise taxes or reduce spending or both in the October budget if she is to meet her fiscal rules.”
Labour is under pressure to spell out how it will balance the books without breaking its pledges, including a commitment to not raise the rates of income tax, VAT or national insurance.
The NIESR report has fuelled concerns over whether the government will introduce a wealth tax, or which taxes Reeves may consider raising. There is speculation about an extension to the freeze on income tax bands and a cut to the current cash Isa limit.
The culture secretary, Lisa Nandy, ruled out a wealth tax on Tuesday. She told Sky News: “The chancellor has very much poured cold water on that idea, partly because many countries have tried this sort of approach, but mostly because we were elected as a government in a time when taxes on working people were at their highest rate for generations.”
