Labour to seek savings to fund policy promises after Jeremy Hunt’s Budget

  • By Paul Sedon
  • Political reporter

Labor now plans to pay for its NHS and school breakfast plans through future cuts to public spending if it comes to power, Rachel Reeves has said.

The party planned to finance the flagship policy by replacing Britain’s current ‘non-dom’ tax regime.

But Chancellor Jeremy Hunt announced the same move at Wednesday’s Budget, to fund a cut to National Insurance.

His Labor colleague Ms Reeves has admitted it will force her to change her own plans.

Speaking to the BBC, she said Labor would now “pass every pound” into the government’s spending plans to fund the policy.

“But we will find that money because it is a national priority, and it is a Labor priority,” she added.

Labor planned to raise an additional £2 billion over the government by replacing ‘non-dom’ rules for UK residents based abroad for tax purposes.

It had set aside £365 million of this to fund free school breakfast clubs for all primary school pupils in England if it won the next general election.

It had also set aside £1.5 billion for extra appointments in NHS hospitals, £171 million for new CT scanners and £111 million for extra dental appointments.

However, the Chancellor has now stolen the policy to part-fund another 2p in the pound cut for National Insurance, a payroll tax, which Labor says it supports.

‘Orderly’ savings overview

After Wednesday’s budget, Ms Reeves ruled out a new wealth tax to plug the shortfall it has created in the party’s spending plans.

Now she has indicated that Labor intends to fund their proposals through cuts to future government spending.

“We will go through every pound spent, every tax collected and make sure we can continue to fund those obligations,” she told BBC Radio 4’s Today programme.

“We will identify the savings we can make to finance this,” she said, underlining that the party’s election manifesto would be “fully budgeted and fully funded.”

But she gave no further details, adding that the party would first have to go through the government’s plans in an “orderly manner” before being able to do so.

Labor set itself the rule that it would not borrow to finance day-to-day spending, and that it would aim to reduce debt as a part of the economy.

The party sees the rule as key to boosting its economic credibility with voters – but it will limit its room for maneuver if it comes to power, against the backdrop of sluggish growth forecasts.

Hunt plans to increase total daily government spending by 1% above inflation every year until 2029, but unprotected departments could face cuts in real terms.

Paul Johnson of the Institute for Fiscal Studies think tank said Labor had made “life harder for itself” by accepting cuts to National Insurance, which cost the Treasury £10 billion a year.

Green Spending Pledge

“The opposition has been as shy as the chancellor when it comes to telling us what they actually plan to do on tax and spending after the election,” he said.

“If I am skeptical about Mr Hunt’s ability to stick to his current spending plans, I am at least as skeptical that Rachel Reeves will lead deep cuts in government spending,” he added.

As well as copying Labour’s proposals on non-doms, the chancellor also followed through on his plans to extend the windfall tax on energy and gas company profits until 2029.

However, Labor insists its proposals in this area would still deliver more than the government’s, as it would also increase taxes and close investment tax exemptions, which it calls “loopholes”.

Speaking to BBC Radio 2, Prime Minister Rishi Sunak said Labor “hasn’t been honest” about how it would be funded. He repeated an attack that the loans it brought would force the party to raise taxes.

But in an attempt to turn the tables on the government, Labor has seized on Hunt’s suggestion that the Conservatives seek to abolish National Insurance entirely in the future.

The party branded the suggestion an ‘unfunded tax promise’ that would cost £46 billion a year to deliver.

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