6th Aug 2025 12:44
(Alliance News) - UK Prime Minister Keir Starmer has defended the government's stewardship of the economy amid warnings that taxes will need to rise in the autumn to plug a GBP51 billion black hole in the public finances.
The prime minister said Chancellor Rachel Reeves's upcoming budget will "build on what we've done" by focusing on "living standards" and "making sure that people feel better off".
It comes after experts said weaker-than-expected recent economic activity, U-turns on welfare cuts and forecast-beating borrowing mean Reeves is on track to miss one of her fiscal rules by GBP41.2 billion in 2029-30.
Including the need to rebuild a financial buffer of just under GBP10 billion that has been wiped out, she will have to find over GBP51 billion, according to the National Institute of Economic & Social Research, a leading think tank.
Starmer declined to explicitly say whether the government was still committed to not raising VAT, income tax and corporation tax in the budget later this year when asked by broadcasters on a visit to Milton Keynes on Wednesday.
"In the autumn, we'll get the full forecast and obviously set out our budget," he said.
"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."
Asked whether he disagreed with economists warning tax rises in the budget would be necessary to raise revenue, the prime minister said "some of the figures that are being put out are not figures that I recognise."
In its latest economic outlook, Niesr said Reeves will likely need to break her pledge not to raise taxes for working people and resort to "moderate but sustained" hikes, or cut spending, to address the shortfall.
"Substantial adjustments in the autumn budget will be needed if the chancellor is to remain compliant with her fiscal rules," said Niesr.
The report has fuelled speculation over how the government may look to boost tax revenues in the autumn, including mounting rumours of a possible wealth tax.
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."
Niesr said if the government moved to extend the income tax threshold beyond 2028, it would bring in around GBP8.2 billion – far short of what is needed.
Culture Secretary Lisa Nandy again ruled out introducing a wealth tax in response to warnings the chancellor could miss her fiscal targets by GBP40 billion.
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.
"We want to bring taxes down for people, we want to help support them, put money back into people's pockets, and all the things that we've been doing as a government in the last 12 months have been aimed at that."
The chancellor has set herself two fiscal rules – the "stability rule", which ensures that day-to-day spending is matched by tax revenues so the government only borrows to invest, and the "investment rule", which requires the government to reduce net financial debt as a share of the economy.
Shadow Chancellor Mel Stride said: "Experts are warning Labour's economic mismanagement has blown a black hole in the nation's finances which will have to be filled with more tax rises – despite Rachel Reeves saying she wouldn't be back for more taxes.
"Labour will always reach for the tax rise lever because they don't understand the economy."
By Abbie Llewelyn, Nina Lloyd, Will Durrant, Harry Taylor and Holly Williams, PA
source: PA
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