Prime Minister Keir Starmer has squarely blamed sweeping tax increases announced in last week's Autumn Budget on the economic record of the previous Conservative government, citing a major downgrade in official forecasts.
PMQs Clash Over Fiscal Responsibility
During a heated session of Prime Minister's Questions on Wednesday, Starmer was grilled by opposition leader Kemi Badenoch on the necessity of the tax rises, which are aimed at funding extra welfare spending and building a larger fiscal buffer. In response, the Prime Minister pointed to a £16bn downgrade to productivity forecasts by the Office for Budget Responsibility (OBR).
"The OBR did a productivity review on their record in office," Starmer stated, referring to the Conservatives. "Last year they left us with a £22bn black hole. This year, the OBR did a productivity review on their record in office, costing an extra £16bn." He challenged Badenoch directly, adding, "If the leader of the opposition had any decency, she would get up there and apologise."
The confrontation comes amid intense scrutiny over the true size of the fiscal hole facing the government. The OBR revealed last week that it had only marginally downgraded forecasts on Chancellor Rachel Reeves's headroom by around £5bn a month before the Budget. The larger £16bn hit from weaker productivity trends was partly offset by stronger projections on inflation and wage growth.
Scrutiny on Reeves and Budget Leaks
Badenoch went on the offensive against Chancellor Rachel Reeves, calling for her resignation and suggesting that if she were a company chief executive, she would face investigation for "market manipulation" over the handling of Budget information. This followed a letter from Shadow Chancellor Mel Stride to the Financial Conduct Authority (FCA), demanding a probe into potentially misleading pre-Budget leaks concerning the fiscal hole and tax plans.
Starmer also defended his government's decision to scrap the two-child benefit cap, a policy some Labour MPs rebelled against last year. He stated that reducing child poverty was a "moral mission," while Badenoch argued that "millions of people have been hung out to dry" by the combination of higher welfare spending and record tax hikes.
The political storm follows a tumultuous Budget week, further complicated by awkward news cycles around jury trials and a collapsed Chinese spy case. Economic data released on Wednesday showed the UK economy with next to no growth in November and jobs being shed at the fastest pace in nine months.
City AM/Freshwater Strategy polling indicated most voters believe Rachel Reeves should resign for freezing income tax thresholds, seen as a breach of a key manifesto pledge. Business confidence, as measured by the Institute of Directors, remained at record-low levels after the Budget.
Starmer's Cautious Stance on EU Relations
Amid a difficult week, Starmer has attempted to shift focus towards welfare reform and building closer ties with the European Union. In a speech on Monday, he argued that Boris Johnson's Brexit deal had "scarred" the UK economy and vowed to unleash a "productivity revolution." Later, he told City financiers the country was "still dealing with the consequences" of cross-Channel trade friction.
However, the Prime Minister adopted a cautious line when pressed by Liberal Democrat leader Ed Davey on rejoining the EU's customs union, stating there were "red lines" Labour would not cross. The government is expected to advance a new youth mobility scheme allowing under-30s to live and work between the UK and Europe, and is reportedly hoping to rejoin the EU's Erasmus student exchange programme.
In a sign of the limits of re-engagement, the government has refused to join the EU's £150bn defence loans scheme for companies due to high upfront costs. Bond investors have reacted cautiously to the Budget's fiscal tightening, with some analysts warning that the government's political vulnerability could undermine its agenda of financial stability.
