Starmer Warns of ‘Painful’ Budget to Rebuild UK Finances
(Bloomberg) -- Keir Starmer warned that his government’s October budget statement will be “painful” and asked the nation to accept “short-term pain for long-term good,” as the prime minister used his first major speech in office to lay the ground for likely tax rises.
“Things are worse than we ever imagined,” Starmer said in Downing Street on Tuesday, blaming the need to rebuild UK public finances on what he called “14 years of rot” under the previous Conservative government. “It’s going to be painful. We have no other choice, given the situation that we’re in.”
Starmer was speaking before Parliament returns from summer recess next week, marking the first proper opportunity for the new Labour administration to set out how it plans to govern after its landslide election victory in July. His remarks suggest the premier still sees political mileage in focusing on Labour’s challenging inheritance and that the British public will — for now — tolerate a more downbeat outlook before expecting improvements.
Yet that strategy is not without risks, after Labour ran an election campaign based on the promise of “change” and a “decade of national renewal.” Early policies, including Chancellor of the Exchequer Rachel Reeves’s decision to scale back assistance for pensioners on their winter fuel bills have triggered concerns — including within Labour’s own ranks — that the government’s approach will not deliver a sufficiently rapid turnaround in people’s economic wellbeing.
Starmer said his government has little option. “I didn’t want to means-test the winter fuel payment, but it was a choice that we had to make,” he said, adding that his plans didn’t “cater for” the £22 billion ($29.1 billion) “black hole” Reeves has said she discovered in the books.
The prospect of fiscal prudence in the UK has given investors confidence to buy gilts in the aftermath of the election amid a rally in global bonds. The yield on 10-year notes, which traded as high as 4.4% earlier this year, is now around 4%, while the pound is near the strongest level versus the dollar in over two years.
The Conservatives, who are in the middle of a leadership contest to replace Rishi Sunak, have argued that the UK’s finances were clear before the election and accused Labour of seeking an excuse to renege on campaign promises.
At the end of his first month in office, Starmer’s honeymoon was cut short by anti-immigration rioting that broke out in several UK towns and cities. Just as on the economy, the premier framed that disorder as a reflection of deep-rooted social problems that festered under the Tories.
He said the rioters were acting out of a calculation that the state wouldn’t have the capacity to crack down on the unrest, given the backlog in the court system and a lack of space in the country’s jails. Starmer said the prison crisis had meant that, throughout the riots, the government had been constantly monitoring the number of available cells to determine what action it could take.
Polls suggest the public ultimately approved of the government’s response, with many prison sentences handed out within days of the disorder.
In his speech, Starmer also set out his legislative priorities for the coming months. He reiterated campaign promises to overhaul regulations on housing and infrastructure building, and to set up the state-run GB Energy to boost investment in clean power. He cited artificial intelligence as a way to improve public services, and spoke of Labour’s plan to re-nationalize the railways.
In the campaign, Labour promised not to raise taxes on working people, effectively ruling out increases to the big-ticket levies of VAT, income tax and national insurance. Starmer, though, said failing public services such as long National Health Service waiting lists act as barriers growth.
“I’ll have to turn to the country and make big asks of you as well, to accept short-term pain for long-term good, the difficult trade-off for the genuine solution,” he said. “After all that you have been through, that is a really big ask and really difficult to hear.”
--With assistance from Aline Oyamada.
(Updates with tax options, charts.)
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