Sir Keir Starmer is to gamble on tens of billions more in tax and borrowing to invest to build a “new future” for Britain.
In a keynote speech just days before the Budget, the Prime Minister was set to brace the nation for the “harsh light of fiscal reality” which will see a string of tax rises and Chancellor Rachel Reeves loosening her debt fiscal rule to go on a borrowing spree to invest in crumbling public infrastructure.
As the new Labour government makes the controversial tax and borrowing changes, Sir Keir was seeking to convince voters that they would deliver “better days ahead”.
However, he was expected not to shy away from the scale of the tax hit and extra borrowing which he defended as necessary for “unprecedented” economic challenges facing the country.
Sir Keir admitted that the fate of his Government could be decided by whether his tax, borrow and spend masterplan works, or not, as Tories were already accusing him of breaking manifesto promises.
“We have to be realistic about where we are as a country,” he was due to say.
“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.”
The PM was due to add: “But I won’t offer it as an excuse. I expect to be judged on my ability to deal with this.
“Politics is always a choice. It’s time to choose a clear path, and embrace the harsh light of fiscal reality so we can come together behind a credible, long-term plan.”
However, the Government is already under fire over its expected hike in National Insurance for employers which could raise as much as £20 billion a year.
The Tories and the Institute for Fiscal Studies say such a tax rise would break Labour’s manifesto and it is being slammed as a “tax on jobs” just as the Government pledges to make boosting economic growth its No1 priority.
The Labour manifesto pledges not to increase the rate of National Insurance, VAT or income tax, and Sir Keir and Ms Reeves argue that this promise is caveating to apply to “working people”.
But the Prime Minister and ministers have being grilled repeatedly over their definition of “working people” and have given answers which appeared to shift the parameters of who it includes.
Other expected tax rises, many of which will hit London hard, include on capital gains tax, inheritance tax, freezing the threshold for paying income tax, and changes to stamp duty.
Fuel duty may also rise.
Council tax could continue going up at five per cent a year, far higher than inflation.
Education Secretary Bridget Phillipson sought to offer reassurances that working people would not see higher taxes “on their payslip”.
But pensioners, landlords, the wealthy and people with significant shareholdings appear set to be hit with higher taxes.
Sources have said the Chancellor is seeking to find £40 billion in tax hikes and spending cuts, with two per cent efficiency savings by Whitehall departments, in order to avoid a return to austerity and invest in the Government’s priorities such as the NHS.
Ms Reeves claims her dramatic plans are needed to plug an alleged £22 billion black hole in the public finances which she say the Tories left, which they deny.
Relaxing the fiscal rules, by changing the definition of debt, may allow the Chancellor to borrow £20 billion more to invest in transport and other infrastructure projects, including the HS2 high speed rail line running from Birmingham to Euston in London.
Some £1.4 billion has been announced already to rebuild crumbling schools, as well as a tripling of investment in free breakfast clubs, £1.8 billion for the expansion of Government-funded childcare, and £44 million to support kinship and foster carers.
Sir Keir was expected to say: “If people want to criticise the path we choose, that’s their prerogative. But let them then spell out a different direction.
“This this is an economic plan that will change the long-term trajectory on British growth for the better.
“This is what fixing the foundations and delivering change means. Everyone in this country will benefit from this. Everyone can wake up on Thursday and understand that a new future is being built, a better future.”
But shadow science secretary Andrew Griffith said Labour “essentially lies to the British people” in terms of its plans, and he compared the party’s behaviour to the “worst form of dodgy car hire firm”.
