(Bloomberg) -- UK Prime Minister Keir Starmer said his government would have to consider raising taxes in the event of an economic shock, in a retreat from Chancellor of the Exchequer Rachel Reeves’s promise to business last month that she wouldn’t ask them to pay more this Parliament.
“What I can’t do is say to you there are no circumstances unforeseen in the future that wouldn’t lead to any change at all,” Starmer told BBC TV in an interview aired on Friday. “If you just look at Covid and the Ukraine situation, everyone already knows there are things that we can’t see now.”
Starmer’s comments mark his latest refusal to stand by the position Reeves set out at the CBI’s annual conference last week, when she said she would not be “coming back with more borrowing or more taxes” after her controversial first budget hiked levies — largely on business — by £40 billion ($51 billion) to fund an increase in public spending and cover a shortfall left by the previous Conservative administration.
The budget has sparked a backlash from farmers and businesses, with firms warning that they would increase prices and hire fewer people because of the tax changes.
Reeves herself declined to repeat the ‘no more borrowing or taxes’ line when challenged in Parliament this week, saying instead that no chancellor would write five years’ worth of budgets in their first five months in the post.
Yet even Starmer’s position risks being a hostage to fortune, given how little leeway the government has to meet its key fiscal rule, which is that day-to-day government spending should be covered by tax receipts within five years. Some economists predict the Office for Budget Responsibility will say in the spring that Labour is on course to miss this target, meaning Reeves would have to announce new tax increases or spending cuts to rectify the government’s position — even absent a Covid or Ukraine-style shock.
“I can tell you our intention was to do the tough stuff in that budget and not to keep coming back,” Starmer said. “We stabilized the economy and that was tough.”
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