UK Chancellor Starmer warns October Budget will be ‘painful’ for public finances

LONDON — British Prime Minister Keir Starmer told the nation on Tuesday that the upcoming October budget will be “painful” as he paved the way for spending cuts to address what the government says is a 22 billion pound ($29 billion) funding gap.

“Given the situation we find ourselves in, we have no choice,” Starmer said in a speech in the garden of 10 Downing Street, the prime minister’s official residence.

“Heavier burdens should be borne by those with the broadest shoulders, and that is what we are fighting against. Non-resident” he added, referring to UK residents who are domiciled outside the UK for tax purposes.

“Those who made the mess should do their part to clean it up, which is why we are strengthening the powers of the water regulator and backing tough fines for water companies that let sewage flood our rivers, lakes and seas,” Starmer said. “But as I did when I responded to the riots, I must turn to the country and make a big ask of you – accept short-term pain for long-term gain, and accept difficult trade-offs for real solutions.”

Starmer’s Labour Party came to power in early July after Landslide election victoryThe British Parliament went into its summer break from July 30 to September 2, but the new government has been grappling with challenges, including A series of riots Far-right groups across the country and Capacity crisis In the prison system.

At the same time, the Labour government has benefited from a continued decline in inflation, which is Hovering around 2%,from Start cutting interest rates Politically independent Bank of England and economy Return to growth past Two consecutive quarters.

The Labour Party in its election manifesto explain It will raise £7.35bn by 2028-29 to fund public services through measures including closing tax loopholes No domicile individualRemoving tax breaks for independent schools, closings already describe as a “tax loophole” for private equity investors and impose a “time-limited windfall profits tax” on oil and gas companies.

Starmer and finance minister Rachel Reeves have repeatedly said they will prioritise economic growth and fiscal responsibility when formulating policy.

In a speech on Tuesday, Starmer said Britain’s public finances were “worse than we thought” and accused the previous government of covering up a £22 billion “black hole”.

Labour published the deficit figures at the end of July and blamed them on overspending and poor budgeting by the previous Conservative government.

Former Treasury Secretary Jeremy Hunt Write to Simon CaseThe head of the UK civil service has described Labour’s claims about the public finances as “deeply troubling”.

Hunt said the so-called £22bn shortfall differed from the “headline estimate” of spending presented to parliament for approval on July 17. He added that the discrepancy in figures could damage the reputation of the politically neutral civil service because budgets are signed off by senior officials.

The Institute for Fiscal Studies is an independent research institute. Previously debated Labour knew the “broad stroke” of the size of the deficit but did not publicly state during the campaign the cuts and tax increases needed to maintain public services.

“Growth – and by that I mean wealth creation, frankly – is the priority for a Labour government,” Starmer said on Tuesday.

Starmer said he did not want to introduce means testing on the winter fuel payment, a pension payment, which has already been There is controversy even within the party — but he added that there would be more “tough” decisions to come.

Starmer said there would be no tax rises for “working people” in the October budget, but he did not provide further details. Previous commitment No increase in VAT, National Insurance (general tax) or income tax.

The speech was criticized by politicians from other parties.

“Keir Starmer said cutting winter fuel payments was a choice he had to make. But when asked about a wealth tax, Rachel Reeves said their spending commitments did not require additional investment. So his hard choice was not to tax billionaires’ wealth,” Green Party deputy leader Zach Polanski said on social media network X.

Conservative politician Kemi Badenoch, the favorite to succeed Sunak as party leader, said the speech showed Starmer “made promises during the campaign that he couldn’t keep, and now his truth is being revealed,” the BBC reported.

Meanwhile, Liberal Democrat leader Ed Davey said The Conservatives left behind a “toxic legacy” that required “bold and ambitious action from government to address”.

CNBC has reached out to the Conservative Party for comment.

David Denton, technical advisor at investment management firm Quilter Cheviot, said in a report that financial markets and investors are still waiting for specific announcements from the government.

“During the Labour campaign, the party stressed that it would not increase various taxes, such as national insurance, VAT and income tax. Therefore, an increase in capital gains tax (CGT) seems reasonable,” Denton said. “Moving it in line with income tax rates, or even just a small increase, could affect investor behavior.”

He added, “Another potential problem is that unless any plans are announced to take antitrust action, we could see a surge in the number of properties on the market as homeowners rush to sell investment properties before new regulations are introduced.”