Labour leader Sir Keir Starmer has said he accepts that there is a £55bn gap in the public finances, a figure provided by the Office for Budget Responsibility (OBR). Whether or not there is a “black hole” that must be filled with tax rises or spending cuts has been a point of debate. Sir Keir said he did not dispute the OBR’s calculations. He said Labour would try to “repair the damage” if it won the next election. Speaking to the BBC, Sir Keir said: “We will have to face that challenge, and therefore we don’t quarrel with the number that the OBR put out as a target or trying to get the debt down.” Some, mostly left-of-centre, economists have suggested that different approaches to calculating the government’s finances would result in a much smaller or even no shortfall. Forecasting economics is notoriously difficult and small changes to the predictions for economic growth or interest rates can make a big difference to how the public finances are expected to look in two or three years’ time. In addition, if the target to have debt falling as a proportion of economic output is extended beyond the chancellor’s five years, that could also reduce the shortfall between government revenues and expenditures. These calculations matter as they strongly influence whether the government believes it has scope to spend more on public services such as health and education, or whether it needs to raise taxes. Economists question ‘black hole’ in UK finances. Higher taxes here to stay says think tank. What Does the Autumn Statement mean for you?
The Labour leader made clear that he and shadow chancellor Rachel Reeves would use the £55bn fiscal gap as a baseline for their policies in any future manifesto and that they accepted that national debt would need to start falling as a proportion of economic output within “a period of time”. This is the first time Sir Keir has publicly accepted these parameters and it will now put pressure on any future Labour government to stick to policies that are consistent with the OBR’s figure. The Labour leadership are keen to convey that they want to be the “party of sound finances”. To that end, they accept the combination of the OBR numbers and a rule that the national debt should start to fall as a proportion of economic output within five years. This means that Labour accepts the idea that there’s a £55bn fiscal repair job to be done, and that that is the set of conditions for the next Labour manifesto, and, should it win the next election, for its first years in office. This matters, because it limits Labour’s room for manoeuvre over spending more on, for example, public sector pay, without taxing more. It raises questions about just how much Labour would be able to diverge from the Hunt/ Sunak plan if it were to form the next government. It also raises the prospect, that, just like under Gordon Brown and Tony Blair, Labour – should it win the election – adhere to strict spending curbs, that even the Conservatives weren’t really planning to follow.
Both parties may hope that more positive surprises in the world economy will help avoid these forecasts ever becoming reality. Sir Keir laid the blame for the fiscal gap on the current Conservative government. “They’ve done huge damage to our economy, not just in the last 12 weeks, but over the last 12 years,” he said. He said a Labour government would “make different choices” on spending and tax compared to the Conservative Party. For example “non-doms”, wealthy foreigners living in the UK, would be asked to pay tax on their income under Labour, he said. “That is money that could be put to training up thousands of staff to come into the health service,” he said. He said the Labour Party had a carefully costed plan for growth and was now “the party of sound money”.
