Sir Keir Starmer has revised his stance on what qualifies as “working people,” following criticism over comments suggesting that individuals who derive income from assets like stocks or property may not fit this category.

The Prime Minister’s clarification comes as debate intensifies over which taxes could see increases in the upcoming budget.

Labour in their manifesto pledged not to raise VAT, income tax, or national insurance contributions for “working people”. However, repeated calls have been made for the government to define this term more clearly, as it could impact who would be shielded from tax hikes.

Among the taxes reportedly under consideration for increases are capital gains tax, inheritance tax, and fuel duty, creating concerns about the reach and inclusivity of Labour’s tax policy.

Starmer said, “They wouldn’t come within my definition,” referring to people earning income from investments. But the Prime Minister’s spokesperson later clarified that Starmer’s comment was directed at those whose primary income comes from significant assets, not those with modest investments.

Government Debt Rules Also Under Spotlight

As questions over tax policy continued to mount, the chancellor, Rachel Reeves, indicated that her budget would involve a change in how government debt is measured. Reeves, attending the International Monetary Fund (IMF) meetings in Washington D.C., stated her budget would “begin to fix the NHS and start to rebuild our economy”, despite facing difficult financial choices.

The market responded swiftly, with an increase in the cost of government borrowing as speculation grew about how the chancellor’s revised debt measurement could enable more spending on national investments. The anticipated move sparked criticism from former Conservative Chancellor Jeremy Hunt, who cautioned that the decision to increase borrowing could “punish families with mortgages”, as higher debt could lead to prolonged interest rate increases.

Hunt added that his guidance from the Treasury had always been that raising borrowing levels would ultimately mean higher costs for families. “Increasing borrowing means interest rates would be higher for longer,” he warned.

Budget Aims to Balance Investment and Fiscal Responsibility

Reeves provided more details, describing her fiscal rules as “the rock of stability at the core of my Budget”. She outlined two main objectives: balancing the current budget so day-to-day expenses are covered by revenues, and reducing debt as a percentage of the economy within five years.

To achieve this, Reeves plans to adjust the way debt is calculated, shifting to a measure known as public sector net financial liabilities (PSNFL) rather than the current public sector net debt standard.

By doing so, Reeves will gain more flexibility, as PSNFL takes into account a broader set of assets and liabilities, including expected student loan repayments, which offset some of the liabilities on the balance sheet.

The shift could provide the chancellor with an opportunity to spend more on critical infrastructure and public services without surpassing her debt reduction target. By embracing a metric that reflects a fuller picture of the government’s financial commitments and potential assets, Reeves believes she can better address longstanding issues in sectors like healthcare while remaining fiscally responsible.

Labour’s Approach Faces Mixed Reactions

Labour’s decision to implement these adjustments has drawn both approval and criticism. Supporters argue that the revised debt calculation aligns with the government’s commitment to economic stability and opens the door for more substantial investments in critical areas like healthcare, clean energy, and transportation.

Meanwhile, detractors warn that shifting debt measurements may set a risky precedent for future borrowing and expose the economy to additional vulnerabilities.

As the debate unfolds, it remains clear that the public is eager for clarity on Labour’s tax and spending policies.

Starmer’s remarks and subsequent clarification indicate the sensitive balance Labour must strike between funding essential services and respecting taxpayers’ financial security.

In the coming weeks, both Reeves’ budget and Starmer’s interpretation of “working people” are expected to influence Labour’s path forward.