Facing the Fiscal Reality: Starmer’s Budget & Tax Rise
Keir Starmer’s government is preparing to announce a tax increase in the upcoming Budget to avert further austerity measures and strengthen public services. Speaking in Birmingham, the Prime Minister laid out his rationale, addressing the nation’s economic challenges with a clear message: tough decisions must be made to avoid another wave of spending cuts. Starmer’s plan, while controversial, promises a future with better-funded services but comes with a cost.
Why Raise Taxes?
Unlike previous eras, Starmer argues the UK is facing a dual crisis—one in public services, and another in the national economy. This isn’t 1997, where services were underfunded, or 2010, where public finances were weak but stable. Instead, both sides of the economic coin are under strain, requiring new revenue to stabilise services without deep spending cuts.
Labour’s Shift: Will It Break Their Election Promises?
Labour’s election manifesto promised to shield working people from tax hikes, specifically ruling out increases in VAT, National Insurance, and income tax. However, as the fiscal reality sharpens, Labour may need to make exceptions, raising questions about who qualifies as a “working person” and how these new policies align with prior commitments.
The expected changes include:
- Raising National Insurance Contributions (NICs), especially for employers, which critics argue indirectly affects employees.
- Extending the income tax threshold freeze past 2028, meaning more people may end up in higher tax brackets due to fiscal drag.
- Potential adjustments to capital gains and asset sales taxes, impacting investors and property owners.
Starmer’s approach emphasizes the need for “broader shoulders” to carry a larger tax burden, sparking debate over who will truly be affected.
What This Means for the Average Worker
In his speech, Starmer said, “The working people of this country know exactly who they are,” suggesting that payslips will be protected. But economists warn that changes in employer NICs often translate to workers, as businesses pass on these costs.
According to Paul Johnson, head of the Institute for Fiscal Studies, workers bear much of the burden when employer National Insurance rises. In effect, increased NICs for employers can eventually lower wage growth, reduce job creation, or lead to higher prices for consumers.
Labour’s Trade-Off: Avoiding Austerity by Raising Taxes
Unlike austerity, which cuts public spending, raising taxes allows Labour to pursue investment in public services—from healthcare to transport—without sacrificing quality. Starmer has hinted that public opinion favours this approach, suggesting that most Brits understand the need for well-funded services, even if it means higher taxes. This choice contrasts with the Conservative austerity measures of the past, which resulted in extensive public service cuts.
By increasing revenue from larger organisations and those with “broader shoulders,” Labour plans to avoid squeezing the typical taxpayer, relying instead on corporations and wealthier individuals to contribute more. However, leading economists point out that, in reality, the average worker will likely still feel an impact.
£2 Bus Fare Cap Raised to £3: What It Means for You
One immediate change is the increase of the bus fare cap from £2 to £3, effective until the end of 2025. Though a slight rise, this adjustment will help fund transit services and maintain affordable transport options across England. For many, the small increase is a welcome compromise, providing sustained access to transport while generating additional funds.
Critics and the Opposition’s Standpoint
While Starmer’s message is clear, the opposition parties are seizing the opportunity to criticise these potential changes. The Conservative Party claims that Labour’s new stance on taxes contradicts their election promises, accusing the government of misleading voters. Shadow Science Secretary Andrew Griffith labelled it a “dodgy car hire firm” tactic, pointing to “small print” exceptions that could expose the average taxpayer to higher costs.
Meanwhile, Liberal Democrat leader Sir Ed Davey supports some increased taxation but urges Labour to focus on “big banks, tech giants, and energy companies” rather than workers and small businesses.
Conclusion: Balancing Realism with Ambition
The upcoming Budget’s tax increase plans have triggered widespread debate, yet they reflect an attempt to balance fiscal responsibility with economic recovery. Starmer’s emphasis on “tough decisions” indicates Labour’s commitment to steering the UK away from austerity. However, only time will reveal how these changes will impact the everyday taxpayer.
Key Takeaways:
- Labour’s tax rise strategy aims to avert austerity by increasing taxes on wealthier groups and employers.
- The £3 bus fare cap will support affordable transit, extended through 2025.
- Critics argue that Labour’s approach risks affecting the average worker indirectly, despite promises of tax exemptions.
While the Budget announcement on Wednesday will confirm the specifics, Starmer’s strategy signals a pivotal shift in the UK’s approach to balancing public service funding and tax burdens.
