UK Prime Minister Keir Starmer said he’ll prioritise economic growth in the government’s upcoming budget, despite concerns from business that a looming package of tax hikes and spending cuts could stymie the British economy.

“The No 1 priority of this government is economic growth and all decisions will be made against that objective,” Starmer said to reporters as he flew back from meeting Italian Premier Giorgia Meloni in Rome on Monday. “If it promotes economic growth, it’s in the ‘Yes’ column; if it is inhibiting growth, it’s in the ‘No’ column.”

Starmer faces a major test on Oct. 30 when he and Chancellor of the Exchequer Rachel Reeves present the new Labour administration’s first budget, with Starmer warning that they need to take tricky decisions to address a fiscal shortfall left by the previous Conservative government. Reeves has hinted at potential tax rises, which are widely expected to focus on wealth levies such as capital gains and inheritance taxes.

“We’re going to do the tough, difficult things up front,” Starmer said. “We’re going to do the really hard stuff now.”

The challenge for Starmer will be reconciling his push for growth with a budget that may act as a brake on the economy. Some of Britain’s wealthiest people have warned that they will leave the country because of Labour’s tax plans, and any fiscal tightening from Starmer would come at a time when the economy is already stagnating. 

Starmer’s argument is that growth will only come once the government has put its own finances on a stable footing, with Starmer citing a £22 billion ($29 billion) shortfall that needs to be addressed. He and Reeves regularly stress a desire to prioritise stability and to avoid an economic crisis akin to that presided over by former Premier Liz Truss, when markets punished the government for having unfunded tax plans.

Reeves and Starmer have already set about tackling the government’s economic position with their decision to remove winter fuel payments from most pensioners, a move that sparked a major backlash and a significant rebellion from their own Labour MPs. Given that Labour ruled out any changes to income tax, the national insurance payroll tax, VAT or corporation tax in its election manifesto - which covers about two-thirds of the UK tax take - they’re having to look in other areas to raise funds.

One option for Starmer is to ease the economic picture for himself by making tweaks to the government’s self-imposed fiscal rules. The current rules require debt to be falling as a share of the size of the economy in five years’ time, and the previous Conservative government was only meeting that target by a narrow margin.

On Monday (Sept 16), a group of leading economists said Starmer should change the rules to allow the government to borrow more to invest in the country’s ailing public infrastructure - and Starmer didn’t rule out the prospect of changes.

“You’re tempting me into issues which are going to have to be dealt with in the budget,” Starmer said. “I’ve always thought it’s important to borrow to invest. But we have got to make sure we have strong fiscal rules in place.”

  - Bloomberg