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Sir Keir Starmer will on Tuesday warn his Labour party to brace itself for decisions that are “not cost-free or easy”, after Downing Street opened the door to Budget tax rises that could breach the prime minister’s pre-election promises.
Starmer’s keynote speech to the party conference comes amid growing speculation — fuelled by Number 10 — that chancellor Rachel Reeves is about to rip up Labour’s manifesto pledge last year not to raise the rates of income tax, employee national insurance or value added tax.
“We need to be clear that our path, the path of renewal, it’s long, it’s difficult, it requires decisions that are not cost-free or easy,” Starmer will say. “Decisions that will not always be comfortable for our party.”
Speaking to Labour activists in Liverpool, Starmer will also warn that Britain’s governing party is in “a fight for the soul of the country” and can choose “renewal or decline”, as he vows to take the fight to Reform UK leader Nigel Farage.
On Monday Darren Jones, his chief secretary, suggested Labour’s tax pledge was no longer sacrosanct when he told Sky News: “The manifesto stands today because decisions haven’t been taken yet.
“I’m not ruling anything out, and I’m not ruling anything in,” Jones added on Monday, referring to the November 26 Budget. “Today, the manifesto stands.”
Reeves will this week be given the first pre-Budget forecast by the Office for Budget Responsibility, the UK’s fiscal watchdog, with ministers expecting it to show a hole in the public finances of up to £30bn.
The OBR is expected to downgrade its forecasts for Britain’s productivity growth, accounting for a large part of the fiscal hole. Reeves is expected to blame previous Conservative administrations for the move.
Starmer will on Tuesday try to direct his party’s gaze away from criticism of his leadership and the dark fiscal outlook towards the future, insisting that the government will “end decline, reform our public services, grow our economy from the grassroots”.
Labour must take on Farage’s “politics of grievance”, the prime minister will add, describing the battle against the populist right as “a fight for the soul of our country, every bit as big as rebuilding Britain after the war”.
Raising income tax rates would be easy to execute administratively even if it did carry a bitter political price. It would also be highly lucrative.
An increase of just one pence to the basic rate of income tax would garner £8.2bn of revenue by 2028-29, according to figures from HM Revenue & Customs, the tax authority. Adding a penny to the higher rate would reap a further £2.1bn.
Another option would be for Reeves to reverse the dual sets of 2p reductions in employee national insurance contributions pushed through by former conservative chancellor Jeremy Hunt in his final two fiscal events. These reductions cost a total of about £20bn.
But NICs are more narrowly targeted than income tax, which is levied on pension income and property earnings, for example.
Starmer was challenged on Sunday on whether Labour would consider an increase to VAT in the Budget and did not rule it out.
On VAT, one option would be to widen the base of the tax rather than increasing the rate, but experts see this as the least appealing option for a government that is vowing to keep consumer prices low.
Reeves also offered one of her clearest hints yet that she would raise taxes on UK betting companies in the Budget. Speaking to ITV, she said companies in the sector “should pay their fair share of taxes and we’ll make sure that happens”.
The chancellor has come under increased pressure from MPs and activists to raise taxes on betting companies to help fund welfare spending and tackle harmful gambling. Gambling operators warn that customers could turn to the black market if the government raises duties on the industry, which the Treasury said pays an estimated £3.4bn annually to the exchequer.
Starmer’s speech is a big moment, as he seeks to reassert authority over his party after a year in which his approval ratings have slumped. Talk around the Liverpool bars among activists and MPs has focused on how long he can last in Number 10.
Andy Burnham, Labour mayor of Greater Manchester, on Monday did not rule out a future bid for the Labour leadership. Asked to state directly that he would not be running, the former cabinet minister noted that he was not an MP. “Someone needs to speak up,” he added.
Meanwhile the Labour conference passed a motion calling on the government “to prevent the commission of genocide in Gaza” and to suspend the UK-Israel trade agreement.
The motion, which is nonbinding on the party leadership or government, nevertheless reflects continuing tensions inside the party over Starmer’s response to the almost two-year old war between Israel and Hamas.
Additional reporting by Mari Novik