By james art The prime minister will warn of “unprecedented” economic challenges and invite the public to judge him on his ability to deal with them as he sets the tone for Wednesday’s announcement.
He is expected to promise that the budget will “ignore the populist chorus of easy answers” amid a series of expected tax rises, including an increase in Employer’s National Insurance by at least one percentage point.
Referring to statements made by New Labour’s Gordon Brown and austerity-era Conservative chancellor George Osborne, Sir Keir will say: “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 when public services were strong but public finances were weak. These are unprecedented circumstances.
“And that’s before we even get to the long-term challenges ignored for 14 years: an economy riddled with weakness in terms of productivity and investment, a country in urgent need of modernization to meet the challenge of an unstable world .”
The prime minister is expected to say he will not offer the UK’s problems as an ‘excuse’, adding: ‘I will not offer it as an excuse. I expect to be judged on my ability to handle 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 rally behind a credible, long-term plan.”
It comes amid opposition accusations of hypocrisy over an expected decision to extend the freeze on income tax thresholds introduced by the Tories and confusion over the Labor government’s use of the term “working people”.
The party had promised in its manifesto that it would not increase taxes on working people – expressly ruling out increases in VAT, national insurance and income tax.
But ministers have since come under pressure to specify who falls within the term after Sir Keir suggested those who make money from assets such as property should not fall within the definition.
Education Secretary Bridget Phillipson tried to offer reassurances that working people would not see higher taxes “on their payslips” as she faced broadcasters on Sunday morning.
But she has been challenged on that claim in light of reports that Chancellor Rachel Reeves will keep the freeze on income tax thresholds, which causes people to pay higher rates through a phenomenon known as “fiscal drag”.
Asked why the Labor government was “picking up working people’s pockets” – language the chancellor used to describe the policy when it was re-announced by the Conservatives last year – Ms Phillipson told Times Radio: “I’m just not prepared to I am speculating with hypothetical statements.”
Other measures expected in Wednesday’s statement include lowering the income threshold at which employers pay their national insurance contributions.
Combined with a rise in employer contributions, this is expected to raise around £20bn as Mrs Reeves seeks to revive public services and put the economy on a stronger footing.
Around £1.4bn has already been announced to rebuild failing schools, as well as trebling investment in free breakfast clubs, £1.8bn to expand government-funded childcare and £44m to support relatives and foster parents.
Ministers have promised there will be no return to austerity, but Ms Reeves is understood to have called on government departments to make efficiency savings of 2% to free up “billions” of pounds to be reinvested on the front line.
The chancellor will also announce a change to the UK’s debt rule, opening the door for the government to spend billions more on long-term infrastructure, such as replacing dilapidated buildings with public sector estates.
It is expected to move to public sector net financial liabilities (PSNFL) as its new measure of debt, rather than the current benchmark of core public sector net debt.
The move to the PSNFL will give it more leeway to meet its debt reduction goal because it includes a broader mix of government assets and liabilities — specifically including expected student loan repayments to offset some of the debt.
Sources said the chancellor is seeking to find £40 billion in tax rises and spending cuts to avoid a return to austerity in next Wednesday’s fiscal statement.
Ms Reeves admitted she would raise some taxes, pointing to a £22bn black hole in the public finances which ministers say was left behind by their Tory predecessors, but did not specify which ones.
Capital gains tax, inheritance tax and fuel tax are among some of the other levers it can use to raise revenue.
The prime minister will say the budget will be underpinned by a commitment to “honest, responsible, long-term solutions in the interests of working people” when he speaks on Monday.
“Stability is what means we can invest and the reforms that will maximize that investment,” Sir Keir is expected to say.
“Stability, investment, reforms. This is how we fix the NHS, restore Britain and protect workers’ payslips. Fulfilling the mandate for change.”
It will challenge critics to propose an alternative to Labour’s plans and explain which public services should be cut instead.
“It is time to ignore the populist chorus of easy answers … we will never go back to that,” the Prime Minister will say.
“If people want to criticize the path we’ve taken, that’s their prerogative. But let them then say another direction.
“This is an economic plan that will change the long-term trajectory of British growth for the better.
“This is what fixing the basics and making a difference is all about. Everyone in this country will benefit from this. Everyone can wake up on Thursday and know that a new future, a better future, is being built.”