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Rachel Reeves says she is “under no illusions” about the scale of the challenge facing Labor if elected after the Government adopted two of its policies to fund tax cuts.
The shadow chancellor told the BBC on Sunday that the new Labor government would carry out a spending review soon after taking office, but could not rule out possible cuts to public services.
Reeves said he would work “methodically” to identify funding for Labour’s spending plans after Chancellor Jeremy Hunt adopts the party’s revenue-raising measures, scrapping the non-dom tax regime and extending sales tax oil and gas unexpected events.
“It is clear that the legacy a Labor government would have if we won the next election will be the worst since the Second World War,” he said.
“I have to be honest: we won’t be able to change things right away. But we will work through all of this,” Reeves added.
His comments came after Hunt announced in his budget a 2p cut to national insurance which costs £10bn a year. Voters remain divided on whether to prefer tax cuts or increased public spending.
According to Ipsos polling, about 36% of voters would prefer increased spending on public services even if they paid more in taxes, compared to 33% who would like the government to prioritize tax cuts.
Conservative MPs fear Wednesday’s Budget will do little to move the needle among voters, with some calling it an “uninspiring Budget”.
Prime Minister Rishi Sunak said on Sunday that the government intends to abolish national insurance completely in the next parliament to end the “unfair” system of “double taxation” of income tax and national insurance.
In an interview with the Sunday Times, Sunak said he intended to consult on new plans to reduce working-age benefits to help fund further tax cuts.
“We now have almost 2.5 million people of working age who have been declared unfit for work,” he said.
The Labor Party said abolishing national insurance would cost £46 billion a year and accused the Government of making an unfunded fiscal commitment, which the Conservatives denied.
Hunt’s new regime for non-doms – wealthy residents deemed to have a permanent home abroad – is expected to generate £3.6 billion a year, while the energy tax extension will raise more than £1 billion in 2028-29, according to the report. Budget documents.
The Labor Party had earmarked revenue from these measures for school breakfast clubs in primary schools and to help fund the net-zero emissions transition. Reeves said Labor was still committed to policy. “I know that public services need more money: that’s why we will do this initial injection,” he told her.
Hunt’s Budget projected government spending would grow by 1% per year in real terms, with per capita spending stable for the rest of the decade.
But because key areas like health have been promised bigger increases, unprotected departments could face real-terms cuts of around 3.3% a year, according to the Institute for Fiscal Studies.
Labor on Sunday also announced that former Bank of England governor Mark Carney and Barclays chief executive CS Venkatakrishnan will join a new taskforce to advise on the planned $7.3 billion national wealth fund of pounds to invest in the decarbonisation of heavy industry.
Reeves said the fund was a “key component” of his party’s growth proposals. Over the next three months, the taskforce will consult investors who Labor hopes can help “raise” £3 from the private sector for every £1 of public investment.