Keir Starmer blamed sweeping tax hikes at the Budget aimed at funding extra welfare spending and building a larger fiscal buffer on the previous Conservative government’s economic performance.
Responding to questions from opposition leader Kemi Badenoch on whether tax rises were necessary, Starmer pointed the finger at a £16bn downgrade to productivity forecasts by the Office for Budget Responsibility (OBR).
He added that revisions were based on the previous government’s economic performance.
“The OBR did a productivity review on their record in office,” Starmer said.
“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.
“If the leader of the opposition had any decency, she would get up there and apologise.”
The fiery remark came as the government has faced intense scrutiny over whether it faced as large a fiscal hole as it was previously assumed.
The OBR revealed last week that it only marginally downgraded forecasts on Reeves’ headroom by around £5bn a month before the Budget, with the £16bn downgrade in productivity trend forecasts being offset by stronger projections on inflation and wage growth.
Badenoch grilled Starmer on Reeves’ survival as Chancellor as she called for her resignation, suggesting that she would have come under fire by regulators for “market manipulation” were she a chief executive of a company.
Shadow Chancellor Mel Stride wrote to the Financial Conduct Authority (FCA) earlier this week to demand an investigation into potentially misleading Budget leaks around the fiscal hole, tax rises and the state of public finances.
Starmer defends two-child benefit cap scrap
When questioned on why he had changed tune on lifting the two-child benefit cap after having removed the whip from some Labour MPs last year for voting against the government’s position, Starmer said reducing child poverty was a “moral mission”.
Badenoch argued that “millions of people have been hung out to dry by their policies” on extra welfare spending and record tax hikes.
The latest session of Prime Minister’s Questions came a week after a tumultuous Autumn Budget, with Reeves’ statement getting upended by the OBR’s leak.
News in the last week, which has included scrutiny of the end of some jury trials and the “shambolic” handling of the collapsed Chinese spy case, has been awkward for Starmer to handle.
Investors in bond markets largely reacted cautiously to fiscal tightening in last week’s statement, though some City analysts warned that the government’s vulnerability threatened to undermine Labour’s economic agenda focused on financial stability.
Data on Wednesday morning suggested that the UK economy suffered from next to no growth over November while jobs were shed at the fastest pace in nine months.
The Institute of Directors’ business confidence survey also showed barely any change in record-low sentiment after the Budget. City AM/Freshwater Strategy polling indicated that most voters believe Rachel Reeves should resign for freezing income tax thresholds, which was widely seen as a breach of a key Labour manifesto commitment.
Starmer treads cautious line on EU relations
Badenoch’s attacks on Starmer top off a difficult week for the Prime Minister, who is attempting to move public discourse onto welfare reform and building closer ties with the European Union.
In a speech on Monday morning, Starmer said that the exit deal struck by Boris Johnson had “scarred” the UK economy as he vowed to unleash a “productivity revolution”.
Later in the evening, Starmer told financial leaders in the City of London that the country was “still dealing with the consequences” of trade friction over the English Channel.
When asked by Liberal Democrats leader Ed Davey on whether the government would join the European Union’s customs union, Starmer said there were “red lines” which Labour would not cross despite hoping to build “closer relations” with the economic bloc.
The government is expected to move ahead with a new youth mobility scheme that would allow Europeans under the age of 30 to live and work in the UK for several years, with Britons granted the same rights in Europe.
It has also been reported that the UK is hoping to rejoin the EU’s Erasmus programme for students, which would help to build up relations with the economic bloc.
However, the government refused to sign up to the bloc’s £150bn defence loans scheme for companies due to the large upfront costs of joining the programme.