Prime Minister Keir Starmer delivered a frank warning ahead of the upcoming Budget announcement, setting the stage for significant tax increases intended to tackle a widening fiscal gap.

In a Monday speech in Birmingham, Starmer aimed to prepare the public for a round of “tough decisions” as Chancellor Rachel Reeves unveils her first Budget this week.

In his speech, Starmer referenced “working people” a striking 24 times, seeking to clarify the term amid criticism of its vague use and promising tax protection for those he says “know who they are.” The Prime Minister reiterated Labour’s commitment to avoid raising income tax, employee national insurance, or VAT — pledges central to the party’s manifesto.

Rising Employer Taxes, Inheritance, and Capital Gains Rates

Sources close to the Treasury anticipate a rise in employers’ national insurance contributions, targeting business owners rather than individual workers.

Such a move would aim to raise an estimated £40 billion to bridge spending shortfalls while attempting to spare “working people” from direct tax increases. Tax hikes in inheritance and capital gains are also on the table as the government looks to close a significant gap in the nation’s finances.

However, Starmer placed part of the blame on what he described as the Conservative Party’s “inheritance” of economic challenges, exacerbated, he said, by costly public sector pay rises. Nevertheless, he defended the likely increases, promising that “better days are ahead.”

“Everyone can wake up on Thursday and see that a new future is being built, a better future,” Starmer said, striking an optimistic note despite the anticipated tax changes. He emphasized the dual priorities of growth and protecting public services, stating: “We choose to protect working people … to get the NHS back on its feet … to fix the foundations, reject decline, and rebuild our country with investment.”

Support Measures Announced to Ease the Burden

Starmer acknowledged the need for “hard choices” and unveiled early steps aimed at providing relief for those affected. Among them, he announced a £240 million fund for councils to support getting long-term unemployed individuals back to work. Additionally, he confirmed that bus ticket prices will be capped at £3 until 2025, up from the previous £2 cap.

Chancellor Reeves is widely expected to confirm an increase in employer national insurance contributions by up to two percentage points, a measure criticized for conflicting with previous promises to protect national insurance from Budget increases. Despite this, she has pledged not to raise taxes directly on “working people,” keeping employee national insurance contributions and VAT untouched.

Starmer and Reeves — Prime Minister Keir Starmer and Chancellor of the Exchequer Rachel Reeves

Starmer’s speech also struck a defiant tone as he warned against yielding to what he called “the populist chorus of easy answers.” He underscored the importance of navigating the current fiscal landscape without compromising on economic stability.

Unprecedented Economic Challenges

Referencing Labour’s past under Gordon Brown and the austerity era under former Chancellor George Osborne, Starmer insisted that the UK now faces “unprecedented circumstances” not seen in recent history.

“This is not 1997, when the economy was decent but public services were on their knees. And it’s not 2010, where public services were strong, but the public finances were weak.”
Keir Starmer

He went on to acknowledge “14 years of ignored challenges,” including issues in productivity, investment, and modernization needs. Despite this backdrop, Starmer affirmed that he would not use these inherited problems as “an excuse.”

“Politics is always a choice. It’s time to choose a clear path, and embrace the harsh light of fiscal reality so we can come together behind a credible, long-term plan.”
Keir Starmer

The Prime Minister’s rhetoric suggests the government is ready to embrace austerity-style fiscal discipline, despite criticism, with an emphasis on a balanced approach to taxation and public spending to address long-standing issues.