Rachel Reeves has borrowed the language of the former Tory chancellor George Osborne to say her first Budget will be for “strivers” as her party faced a deepening row over the definition of “working people”.
Labour has pledged not to raise key taxes, including income tax, VAT or national insurance, on working people. But the government is under mounting pressure to clarify who will be affected after a cabinet minister came under fire for repeatedly refusing to say if a small business owner earning £13,000 a year qualified.
In a sign of how high the stakes are, on Sunday Paul Johnson, the director of the highly respected Institute for Fiscal Studies (IFS) think tank, warned this could be “one of the biggest tax-raising budgets ever”.
And former Bank of England governor Mervyn King warned that Ms Reeves’s plans for extra borrowing could drive up mortgage payments.
The chancellor is looking to raise £40bn to avoid a return to austerity after she accused the Conservatives of leaving a £22bn black hole in the public finances. She has warned that her first Budget involved “tough decisions”.
But she said her reforms – which will include investment in projects Labour hopes will kickstart economic growth – were for “hardworking families up and down the country who have been crying out for change”.
“To these people I say, I’ve got your back…. I will deliver for you. It’s a Budget for the strivers,” she wrote in The Sun on Sunday.
Her comments risk a backlash for echoing Mr Osborne’s language, coined in 2012 to defend his austerity measures.
He came under heavy fire for the term, amid accusations he was insulting the poor. Former Labour shadow chancellor John McDonnell tweeted: “Simple request to whoever is now running Labour’s communications strategy, drop the ‘strivers’ language as it inevitably has led in the past to reference to ‘skivers’ prefacing attacks on welfare benefit claimants [and] cuts in social security support.”
Labour has insisted its Budget will reject a return to austerity, a pledge Sir Keir Starmer will make again on Monday during a speech in the West Midlands.
Among the measures the chancellor is expected to unveil are higher national insurance contributions by employers, an increase in capital gains tax on shares, closing inheritance tax loopholes and extending the freeze on income tax thresholds.
Government departments are also braced for spending cuts to help balance the books.
The chancellor has also changed her debt rules to free up to an extra £50bn of borrowing for long-term investment in new national infrastructure.
But the government’s Budget plans have been hampered by its election manifesto pledge not to raise taxes on working people.
Ministers, including the prime minister, have struggled to define who is a “working person”.
Education secretary Bridget Philipson declined to say if a small business owner earning £13,000 a year came under the working people definition.
Ms Phillipson suggested it was those “whose main income arises from the fact that they go out to work every day”, and included ministers like her.
In his speech Sir Keir will pledge an end to “sticking plaster” solutions as he paves the way for tax rises and spending cuts.
He will warn the state of the economy is at its worst since 1997 “when the economy was decent but public services were on their knees. And it’s not 2010, where public services were strong, but the public finances were weak”.
“These are unprecedented circumstances,” he will say.
But he will say his government’s purpose is to protect working people from the dire economic situation his party has inherited.
“It is working people who pay the price when their government fails to deliver economic stability. They’ve had enough of slow growth, stagnant living standards and crumbling public services. They know that austerity is no solution.”
Sir Keir will say: “But I won’t offer it as an excuse. I expect to be judged on my ability to deal with this. Politics is always a choice. It’s time to choose a clear path, and embrace the harsh light of fiscal reality so we can come together behind a credible, long-term plan. It’s time we ran towards the tough decisions, because ignoring them set us on the path of decline. It’s time we ignored the populist chorus of easy answers… we’re never going back to that.”
He will also pledge “better days are ahead” under plans for long-term investment to kickstart economic growth.
The Conservatives accused the government of planning to break its promise to working people. Shadow exchequer secretary Gareth Davies said: “On Wednesday, Labour look set to break their manifesto promises. Despite ruling out any changes to the fiscal rules, they are now fiddling the figures to whack up borrowing, and are set to raise tax on working people.”
He added: “It’s no wonder Paul Johnson has suggested this Wednesday will be one of the biggest tax rising budgets in history. Labour are not keeping their word. They’re attempting to pull the wool over the public’s eyes – but it won’t work.”