Keir Starmer says ‘painful’ Budget is needed for ‘long-term good’
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Sir Keir Starmer’s spending plans, outlined in his speech yesterday, are a recipe for “crashing the economy”, and the Prime Minister will not be able to blame the Tories when he does, a banking expert has warned.
And Bob Lyddon fears Sir Keir's "gloom-mongering" risks denting consumer and business confidence, meaning Chancellor Rachel Reeves's much-heralded October Budget may come "too late".
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The Labour leader, currently in Berlin, yesterday warned his party’s fourth Budget would be "painful" as he asked the country to "accept short-term pain for long-term good”, zeroing in on what he called a ￡22 billion black hole in the public finances he claimed he had inherited from predecessor Rishi Sunak.
However, Mr Lyddon, founding of Lyddon Consulting Services, suggested Sir Keir’s argument did not wash.
He told Express.co.uk: "Starmer has no need of one of his tedious narratives about why taxes have to rise. We all knew what was coming if the vote of the Right was split at the General Election and Starmer was gifted a huge majority. The backers think it is pay-out time. It is, and Labour are duly paying out, with other people’s money.”
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Prime Minister Sir Keir Starmer and (left) Chancellor Rachel Reeves (Image: PA)
There was some merit in the suggestion that the Tories had left a huge problem, Mr Lyddon conceded.
He explained: “They overspent under every Prime Minister except Liz Truss, pandering to Labour voters whilst punishing their own, with increases in benefits, frozen or reduced tax thresholds and allowances, in particular attacking small businesses and landlords.”
Consequently, the economy and wealth creation could have grown more quickly, but they were growing up until July 4, Mr Lyddon argued.
He continued: "Labour’s verbals lay the greatest blame on Truss/Kwarteng, as if they had ‘crashed the economy’. The others are spared, because Labour’s tax plans max out on the way prepared for them by May, Hammond, Johnson, Sunak (as Chancellor and as PM) and Hunt.”
Nevertheless Labour’s “narrative” – essentially being that Tory “blunders" necessitated huge tax rises – had a "limited shelf life", depending as it did on what Mr Lyddon called "amnesia about the pandemic and Ukraine”.
Prime Minister Sir Keir Starmer during his speech and press conference yesterday (Image: Getty Images)
He added: "Labour’s moves must happen quickly before people have time to think calmly and clearly, and before the results of their own decisions are reflected in both the public finances and the general economy.
"A Budget in October may already be too late, given that Starmer’s gloom-mongering will dent consumer and business confidence at once, and restrict GDP growth in August and September.”
Sir Keir had been presented with a “Welcome to Downing Street gift” in the shape of a 0.25 percent interest rate cut by his “new best buddies” at the Bank of England, Mr Lyddon suggested.
He said: "Now inflation has increased again. Labour have added to inflationary pressure by awarding above-inflation pay rises to public sector workers with no agreement to productivity increases: the same service just became more expensive, that’s inflation.
"Labour’s remedies to the problem they claim to have diagnosed are misplaced.
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"They threaten businesses and may even send them under: strengthened worker rights, higher Employer National Insurance contributions, an increase in the Minimum/Living Wage.
"That all cuts profits and disincentivises both hiring staff and making investments. GDP growth halts. Lower business profits mean the government’s corporation tax receipts fall, at the same time as unemployment increases, boosting the benefits bill."
Corporation tax is not the only aspect of the public finances which looked fragile, Mr Lyddon warned.
He said: “The Chancellor has been warned that an increase in the taxation of capital gains may lead to a fall in receipts of capital gains tax.
"The expenditure lines in the public finances look highly robust: growing quickly and fuelled even further by Labour decisions since the election.
"This a recipe for a genuine ‘crashing of the economy’: renewed inflation and attacks on business, in tandem with falling tax revenues and rising public expenditure. Labour will not be able to blame that on the Tories.”
Former PM Liz Truss and Chancellor Kwasi Kwarteng were accused of crashing the economy in 2022 (Image: PA)
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Speaking yesterday in Downing Street's Rose Garden, Sir Keir said: "There is a Budget coming in October, and it's going to be painful. We have no other choice, given the situation that we're in.
"Those with the broadest shoulders should bear the heavier burden, and that's why we're cracking down on non-doms.
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"Those who made the mess should have to do their bit to clean it up - that's why we're strengthening the powers of the water regulator and backing tough fines on the water companies that let sewage flood our rivers, lakes and seas.”
However, he stressed: “Just as when I responded to the riots, I'll have to turn to the country and make big asks of you as well, to accept short-term pain for long-term good, the difficult trade-off for the genuine solution.
"And I know that, after all that you have been through, that is a really big ask and really difficult to hear. That is not the position we should be in. It's not the position I want to be in, but we have to end the politics of the easy answer - that solves nothing."