Budget will embrace ‘harsh light of fiscal reality’, Sir Keir Starmer to say
The Labour government’s first budget will embrace the “harsh light of fiscal reality” but “better days are ahead”, Sir Keir Starmer will say in a speech today.
Chancellor Rachel Reeves will deliver the budget on Wednesday and setting the tone for the announcement, the prime minister will warn of “unprecedented” economic circumstances and the need to face “the long-term challenges ignored for fourteen years”.
Sir Keir is expected to tell the country: “This is an economic plan that will change the long-term trajectory of British growth for the better.”
Changes expected in the budget include a rise in employer national insurance, of at least one percentage point, and the scrapping of tax exemptions for private schools.
Labour pledged in its manifesto it would not increase taxes on “working people” and has explicitly ruled out rises in VAT, national insurance and income tax.
But, the party has been accused of hypocrisy over an expected decision to extend a freeze on income tax thresholds.
Ministers have also come under pressure to spell out who falls within the term “working people” after Sir Keir suggested those who make money from assets such as property would not fall within the definition.
Later, the prime minister is expected to say he will not offer the UK’s problems as “an excuse”, adding: “I expect to be judged on my ability to deal with this.
“We have to be realistic about where we are as a country. This is not 1997, when the economy was decent, but public services were on their knees.
“And it’s not 2010, where public services were strong, but the public finances were weak. These are unprecedented circumstances.
“And that’s before we even get to the long-term challenges ignored for fourteen years.
“An economy riddled with weakness on productivity and investment. A state that needs urgent modernisation to face down the challenge of a volatile world.”
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Pre-empting criticism, Sir Keir is expected to tell the public: “It’s time we ran towards the tough decisions, because ignoring them set us on the path of decline. It’s time we ignored the populist chorus of easy answers… we’re never going back to that.
“If people want to criticise the path we choose, that’s their prerogative. But let them then spell out a different direction.”
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“Everyone can wake up on Thursday and understand that a new future is being built, a better future,” he is expected to say.
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Ms Reeves is looking to fill what’s thought to be a £40bn “black hole” to fix public services and shore up the economy.
Some spending plans have already been confirmed, including £1.4bn to rebuild crumbling schools and a £10bn cash injection for the NHS to tackle ballooning waiting lists.
Education Secretary Bridget Phillipson repeatedly said she could not speculate on how the chancellor intends to fill the black hole in the nation’s finances during an interview on Sunday Morning With Trevor Phillips.
But, she said: “We set out in our manifesto that we would not be increasing VAT, national insurance or income tax on working people. We will hold to that. And in the payslips that they see after the budget, they will not face higher taxes.”
Donald Trump’s victory was secured on an unequivocal promise to stretched American households that he would “end inflation”, but markets and economists are anticipating his second term will do the opposite.
A combination of corporate tax cuts, government borrowing, lower migration and swingeing tariffs on overseas imports are all expected to heat up the American economy and stoke price rises.
Bond yields on 10-year US Treasuries, effectively the price of borrowing for the American government, were up by 3.6% overnight, rising more than 15 basis points to above 4.4% as European markets opened.
That signals investors believe that borrowing will rise, and the Federal Reserve will be forced to slow rate cuts in order to tackle inflation.
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A clearer picture will emerge on Thursday when Federal Reserve chairman Jay Powell, who Mr Trump said will not be reappointed, announces the next move on rates.
Markets still expected a 0.25 percentage point cut (a similar move to that anticipated from the Bank of England earlier in the day) but Mr Powell’s comments will be scrutinised for signals of what Trump 2.0 means for the prospect of further cuts.
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But higher prices for consumers are not necessarily bad news for corporate America, with the dollar surging against sterling and the euro as swing states fell to Mr Trump, and Wall Street futures trading indicating a rally when they reopen with him confirmed as president-elect.
Shares in US banks were boosted with J.P. Morgan, Goldman Sachs and Morgan Stanley all up more than 6% in pre-market trading, along with Tesla, boosted by more than 13% as markets anticipate a dividend for Elon Musk’s campaign-trail support.
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Defence stocks were higher too and not just in the US – BAE Systems and Rolls Royce were both up – reflecting likely pressure on America’s NATO allies to make good on their commitments to increase spending.
Bitcoin was also positive in anticipation of a more benign regulatory environment from a president who used the campaign platform to launch his own cryptocurrency.
By contrast renewable holdings, the target of much of Joe Biden’s economic stimulus, were in negative territory, with wind and solar priorities likely to be replaced by a pledge to “drill baby, drill”.
Of most concern to America’s trading partners and allies will be Mr Trump’s promise to erect barriers to free trade.
The man who said tariffs “is the most beautiful word in the world” has pledged a 60% levy on Chinese imports and 10% on those from elsewhere, a deeply protectionist move that could trigger a trade war with China and the EU.
These can only increase prices in the US, with importers paying the levies at the point of entry, and other trading blocs likely to respond in kind.
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The EU has already imposed its own 35% tariff on Chinese EVs to the dismay of the continent’s carmakers the measure is intended to protect.
While these tensions play out, post-Brexit Britain, a relatively small player outside the major trading blocs, is likely to be a spectator.
Post Office campaigner Sir Alan Bates is yet to receive a reply from Sir Keir Starmer, despite writing to him over a month ago.
Sir Alan said he had written to the prime minister to remind him the “clock is still ticking” on a financial redress deadline for victims.
In his letter, he demanded a March 2025 deadline for compensation for sub-postmaster victims of the Horizon scandal.
Sir Alan confirmed to Sky News he was yet to hear back from the prime minister.
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“It was over a month ago,” he said.
“I sent him a reminder yesterday. I told him the clock is still ticking and it’s now five months from the March deadline, which I’m told is still achievable by other professionals.
“So let’s get on with it, that’s all we want. Get on with it.”
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