Starmer warns of ‘really painful’ Budget to ‘fix the rot’ left by Tories

The prime minister defended taking away winter fuel payments from thousands of pensioners as he warned of ‘worse to come’

Sir Keir Starmer has admitted that the country is set to be hit with “a very painful Budget” in October as his new Labour government tries to “fix the rot” left by the Tories.

Speaking to a group of 50 voters and supporters in the Downing Street rose garden, the prime minister hinted at more spending cuts and tax rises to come as his party attempts to close a £22bn black hole they claim to have found in the public finances.

He warned that “things are worse than we ever imagined” because of a £22bn “black hole” in the public finances, claiming to have found out last week that the Tories had borrowed almost £5bn more than the Office for Budget Responsibility (OBR) expected.

Starmer delivers a speech to mark the reopening of business in parliament next week (EPA)

While he insisted that his top priority is still wealth creation, it is now widely expected that his government will hit a number of taxes including capital gains and inheritance tax to fill the gaps in public spending.

He said: “There is a Budget coming in October, and it’s going to be painful. We have no other choice, given the situation that we’re in.

“Those with the broadest shoulders should bear the heavier burden, and that’s why we’re cracking down on non-doms.

“Those who made the mess should have to do their bit to clean it up – that’s why we’re strengthening the powers of the water regulator and backing tough fines on the water companies that let sewage flood our rivers, lakes and seas.”

It came as Sir Keir defended his chancellor Rachel Reeves’s decision to means test winter fuel allowance payments to pensioners, which Age Concern has warned will leave thousands at risk this winter.

Chancellor of the Exchequer Rachel Reeves is expected to raise taxes in her October Budget (PA)

He said: “I didn’t want to have to deal with the winter fuel allowance for pensioners ... We have to fix the NHS, we have to fix our homes, our schools, and pensioners rely on them in the same way as everybody else does, so I’m not going to pre-empt the Budget, but I am absolutely not going to accept that the inheritance that we have is anything other than dire – a £22bn black hole.”

The prime minister said he was “not going to pre-empt the Budget” when pressed on what tax rises and spending decisions the government is considering to announce on 30 October, although he reiterated his pledge on the “triple lock for working people”.

“We were being honest about the situation before the election, we set out very clearly what we would be doing with tax rises,” he said.

“I made it clear on numerous occasions that national insurance, VAT and income tax would not go up, the triple lock for working people, and that remains the position.

But the prime minister insisted that while parliament is going to be open for business again next week “it cannot be business as usual”. He claimed that he wanted to be honest with people about the task ahead after a summer scarred by far-right riots which he said showed the rot in Britain’s social fabric as well.

He dismissed Tory claims that the £22bn black hole “is just performative” to justify tax rises he had avoided mentioning during the election campaign. Sir Keir pointed out that the OBR had said it had not been told about the massive shortfall in the public accounts.

But after a summer where he had been accused of running a two-tier justice system, faced criticism over spending cuts, and had been challenged over cronyism with appointments of political allies to public sector roles, the prime minister needed to set the scene and come out fighting.

The scene of his speech in the rose garden was where former Tory prime minister and Liberal Democrat deputy prime minister Nick Clegg held their press conference in 2010 ending 13 years of Labour power. The only other press conference to be held there was Boris Johnson’s former chief of staff Dominic Cummings attempting to explain why he had not broken lockdown rules at the height of the pandemic.

The prime minister chose the venue because the garden was the scene of lockdown parties during Mr Johnson’s government and he pointed to seats where pictures of drinking during the pandemic had been taken.

Sir Keir claimed his government has inherited a “societal black hole” made worse by recent rioting, and said his decisions to release some prisoners early and means-test the pensioners’ winter fuel allowance are “tough actions” needed to fix the country’s foundations.

“But, 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.

“And I know that, after all that you have been through, that is a really big ask and really difficult to hear. That is not the position we should be in. It’s not the position I want to be in, but we have to end the politics of the easy answer – that solves nothing.”

He used his speech to claim the government had to undertake daily checks on the number of prison places to “make sure we could arrest, charge and prosecute people quickly” during the recent riots.

“That’s disgraceful,” he said. “No prime minister should ever be in that position when trying to deal with disorder. That’s what we inherited, that’s what we will fix.”

Pressed further on his government’s tax and spending plans, Sir Keir told reporters: “We have to get away from this idea that the only levers that can be pulled are more taxes or more spending. Our number one mission is to grow the economy to make sure we are creating the money in the first place – that remains the number one mission, nothing knocks that mission.

“And that’s why it’s really important we have a transport system that works, that’s why it’s really important we have an NHS capable of getting through the backlog, that’s why it’s important we have the national wealth fund, Great British Energy, that we unlock planning so that we can get on.

“All of those decisions are decisions we’ve taken in the first seven weeks to make sure we get the economy where we need it, but we’re going to have to take tough decisions.”

Conservative leadership candidate Kemi Badenoch, who serves as shadow housing secretary, said: “Keir Starmer is taking the British public for fools, but his dishonest analysis won’t wash. He campaigned on promises he couldn’t deliver and now he is being found out.”