October Budget Won’t Undermine Economic Growth Goal: Prime Minister

Britain's Prime Sir Minister Keir Starmer leaves 10 Downing Street in central London on Sept. 4, 2024. Henry Nicholls/AFP via Getty Images

Prime Minister Sir Keir Starmer has vowed that the Autumn Budget, widely expected to include tax increases and spending cuts, will not inhibit economic growth.

Speaking to reporters on Monday on his trip to Italy, Starmer said that economic stability was essential to achieving growth.

“If it promotes economic growth, it’s in the Yes column; if it inhibits economic growth, then it’s in the No column. And because I believe that stability is vital for economic growth—I don’t think we’re going to get economic growth if we don’t stabilize the economy—we’re going to do the really hard stuff now,” the prime minister said.

His remarks come ahead of the budget statement on October 30. Labour has warned that the upcoming budget will be “painful” and said there was a “£22 billion black hole” in the public finances.

Starmer said that while dealing with the black hole was key to stable economy, his government will make all decisions with the objective of economic growth in mind.

Chancellor Rachel Reeves is expected to announce a number of tax changes, which are meant to increase revenue for the Treasury.

Ministers need to secure a stable influx of revenue to reduce the current record levels of public sector net debt and lower government borrowing. Failure to do so will result in the UK national debt tripling over the next 50 years, the Office of Budget Responsibility (OBR) has warned.

The watchdog, which assesses the health of the UK’s economy, said that a boost to economic growth “could make the biggest difference of all” in national debt reduction.

Closing Loopholes

Over the course of the next Parliament, Labour plans to reduce debt as a share of the economy.

The government has vowed to raise £2.6 billion in the next five years—including £1 billion initially—“by closing the loopholes” in the tax status of UK resident non-domiciled individuals.

Labour also wants to establish a wider range of tax schemes to be reported to HMRC under the disclosure of tax avoidance schemes regime.

Elsewhere, the government is expected to raise fuel duty and the capital gains tax (CGT).

CGT is levied on the profit made on the sale of an asset that has risen in value. It is levied at a lower rate than income tax, which makes it a tempting target for the Treasury.

Basic rate income taxpayers are typically subject to 10 percent on gains from most assets and 18 percent on residential property and performance-based rewards for investment managers.

For those in higher income brackets, higher CGT rates apply—20 per cent for most assets, 24 percent (from 6 April 2024) on residential property and 28 percent on carried interest.

The Treasury could make significant savings by taxing people who choose to disguise their income as capital gain. The OBR expects the tax to raise £15.2 billion in 2024-2025.

The government has explicitly said it will target managers working in the private equity industry “where performance-related pay is treated as capital gains.”

“Labour will close this loophole,” the party’s manifesto said, estimating that the measure will raise £565 million per year.

According to the think tank Resolution Foundation, a focus on CGT, Inheritance Tax and pension contribution tax reliefs could raise “substantial revenue—of over £20 billion if needed” for the government.

Investor Confidence

The Confederation of British Industry (CBI), which represents 170,000 businesses in the country, has warned that ahead of the “difficult” budget, the government needs to maintain investor confidence.

“This means avoiding further pressures on business costs and providing firms with the certainty and long-term commitments over tax, regulation and infrastructure that will give them confidence to invest,” said CBI Lead Economist Ben Jones.

Commenting on concerns about underinvestment in the economy, Starmer said it was a matter for the budget but strong fiscal rules were important.

“I’ve always thought it’s important to borrow to invest,” he said.

The prime minister added that he wants to avoid the repeat of unfunded budget policies, announced by the Conservative Prime Minister Liz Truss in 2022.

His comments come after official data recorded economic stagnation in July, with no GDP growth in both June and July.

Reuters Media contributed to this report.