Labor has pledged “iron discipline” with public finances and reducing Britain’s debt burden if it comes to power, in a bid to draw a clear dividing line with Tory leadership candidates promising billions of pounds in tax cuts.
Rachel Reeves, the shadow chancellor, will use a speech on Wednesday to commit the incoming Labor government to tough borrowing limits designed to protect the public finances while allowing it to lay the foundations for a growing economy.
As candidates vying to replace Boris Johnson as prime minister promise billions of pounds worth of tax cuts without any clarity on how they will be funded, Reeves will argue that “the tables have turned” on fiscal soundness.
“Any remaining sense that the Conservatives are the party of economic responsibility has been blown to bits in the last few days,” she will say.
Two former Tory chancellors and a former senior civil servant at the Treasury have hit out at leadership rivals amid an apparent bidding war for tax cuts in the first week of the race.
Leading economists said the sweeping cuts risk fueling higher levels of inflation while either increasing government borrowing or requiring sharp cuts to public services.
Nadhim Zahawi, who took over as chancellor last week, announced tax proposals as part of his leadership bid worth around £50 billion a year – almost equal to the entire school budget – while Sajid Javid, the former health secretary, made promises worth around £40 billion per year.
Rishi Sunak, the former chancellor and early favorite in the race, launched a coded attack on his rivals, describing the unrealistic tax plans as “comfort tales” that would ultimately burden future generations.
Reeves’ announcement comes as Labor tries to bury questions about its economic credibility that have lingered since the 2008 financial crisis and were dragged down by the Conservatives when Jeremy Corbyn was opposition leader.
Labor said the Tory leadership contenders’ tax promises would breach the government’s own fiscal rules and create a budget deficit of £24bn, resulting in national debt reaching 84% of GDP by 2026-27.
Reeves will say a Labor government will stick to fiscal rules, which will include a pledge to borrow only for investment, while also committing to reducing the national debt as a share of the economy.
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The shadow chancellor will tell an event organized by the Resolution Foundation think tank in London: “I have set out the fiscal rules that will bind the next Labor government. Rules I will follow with iron discipline.”
Reeves will argue that the Conservatives are failing to put forward serious plans to help people struggling amid the cost of living crisis.
“[Instead] we are presented with the extraordinary spectacle of the Tory raffle of tax cuts – with no explanation of what public services will be cut or how else they will be paid for.
“The level of unfunded tax cuts being talked about this week will put a huge hole in the public finances. Every single Conservative leader candidate backed the government’s fiscal rules when they were passed into law in January, but now they are ready to hit them with a flamethrower.
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