Labour urged against return to austerity as Keir Starmer warns of 'painful' autumn budget

Labour must not “introduce austerity by the back door”, campaigners have urged, after prime minister Keir Starmer warned of a “painful” autumn budget.

In the run-up to the general election, Starmer assured the Big Issue that Britain would not return to “austerity 2.0” on his watch. Since then, he has come under pressure to help millions of people struggling with the cost of living and eye-watering energy bills.

• Austerity is more expensive than investment in public services. It’s basic maths
• Keir Starmer will continue austerity. That means keeping vulnerable people in ‘brutalising poverty’

But in his first major speech as PM, Starmer has cautioned that “things will get worse before they get better”, hinting at “unpopular decisions” necessitated by a £22bn “black hole” in public finances.

“I will be honest with you, there is a budget coming in October and it’s going to be painful,” he said.

“Just as when I responded to the riots, I’ll have to turn to the country and make big asks of you as well to accept short term pain for long term good. The difficult trade-off for the genuine solution.”

There is a lot of grey area regarding what these “unpopular choices” will entail in the autumn budget, Danish Kazi, economist and the head of Positive Money, said.

“Best case scenario, the government would implement a range of effective wealth taxes – say, equalising capital gains tax with income tax, and taxing the windfall that many corporations made during the pandemic,” she told Big Issue. “Worst case scenario is that they double down on spending cuts, which would effectively reintroduce austerity through the back door.”

Starmer’s speech suggests that tax rises are likely in October, with “those with the broadest shoulders” bearing “the heavier burden”. However, cuts to public spending also seem likely. The new Labour government has already come under fire for retaining the two-child benefit cap and introducing means-testing for pensioner winter fuel payments.

Today, Starmer said he “didn’t want” to introduce the latter, but was compelled to do so by the state of public finances, adding that the choice would “protect the most vulnerable pensioners.”

However, Kazi questioned the framing of the debate.

“There are choices about how to generate that money,” she said. “The government doesn’t just get money from taxpayers; it can borrow more cheaply than the rest of us… it should do so to fix crumbling public services.”

“The government is not like a household. Government has the leverage and the infrastructure to borrow at lower rates. It should do so to support the most vulnerable, along with wealth taxes.”

Possible tax hikes have provoked fury from Conservative quarters.

“The government are no longer promising to protect working people from their incoming tax raid because just like pensioners, working families are next in line for Labour’s tax hikes, said Laura Trott, the Conservatives’ shadow chief secretary to the Treasury.

“After promising over 50 times in the election not to raise taxes on working people Labour are now rolling the pitch to break even more promises.”

Green Party co-leader Carla Denyer was also unimpressed – albeit for different reasons. Denyer said that Britain needs a “new approach,” not for “”constant reminders” of Tory failure and for “things to get worse before they get better”.

“We must generate the funds needed for investment by shifting the burden away from the poorest onto the wealthiest,” she said. “Labour’s refusal to tax the super-rich shows that business as usual is very much still in business.”

Ed Davey, leader of the Liberal Democrats, was more supportive of Starmer. “Only the out-of-touch Conservative Party will deny the scale of the challenges facing the government,” Davey said.

Unite the Union has called for an emergency wealth taxes to fund spending on public infrastructure. The demand would see a 1% tax on the assets of the ‘super-rich’ – to be applied on the assets of those worth more than £4m.

“The British economy is broken,” said Sharon Graham, the general secretary of Unite. “We need serious investment in our crippled public services and in industry to ensure a prosperous future for Britain’s workers and their communities. We won’t get the money needed for that just by waiting for growth.”

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