Budget leaves Labour seeking savings to fund pledges

Labour now intends to pay for its NHS and school breakfast plans through future savings to public spending if it wins power, Rachel Reeves has said.

The party had planned to fund the flagship policies by replacing the UK’s current “non-dom” tax regime.

But Chancellor Jeremy Hunt announced the same move at Wednesday’s Budget, to fund a cut to National Insurance.

His Labour counterpart Ms Reeves has admitted it will force her to tweak her own plans.

Speaking to the BBC, she said Labour would now “go through every pound” in the government’s spending plans to fund the policies.

“But we will find that money, because it is a national priority, and its is a Labour priority,” she added.

Labour had planned to raise an extra £2bn compared to the government by replacing “non-dom” rules for UK residents based overseas for tax purposes.

It had earmarked £365m from this to fund free school breakfast clubs for all primary school pupils in England, if it wins the next general election.

It had also set aside £1.6bn to pay for more appointments in NHS hospitals, new CT scanners, and extra dentist appointments.

However, the chancellor has now stolen the policy to partially fund a further 2p in the pound cut to National Insurance, a payroll tax, which Labour has said it supports.

Following the Budget on Wednesday, Ms Reeves ruled out a new tax on wealth to make up the shortfall it has created in the party’s spending plans.

Now, she has signalled that Labour plans to fund their proposals through savings to future government spending.

“We will go through every pound spent, every tax raised, and make that sure we can continue to fund those commitments,” she told BBC Radio 4’s Today programme.

“We will identify the savings we can make to fund this,” she said, underlining the party’s election manifesto would be “fully costed and fully funded”.

But she did not offer further details, adding the party would first need to go through the government’s plans in an “orderly way” before it would be in a position to do so.

Read more on the Budget

Labour has a self-imposed rule that it would not borrow to fund day-to-day spending, and it would aim to reduce debt as a share of the economy.

The party sees the rule as key to burnishing its economic credibility with voters – but it will limit its room for manoeuvre if it wins office, amid the backdrop of sluggish growth forecasts.

Mr Hunt is planning to increase overall day-to-day government spending by 1% above inflation every year until 2029, but unprotected departments could see real-terms spending cuts.

Paul Johnson, from the Institute for Fiscal Studies think tank, said Labour had made “life more difficult for itself” by accepting the cut to National Insurance, which costs the Treasury £10bn a year.

“The opposition has been just as shy as the chancellor about telling us what they actually intend to do on taxes and spending after the election,” he said.

“If I am sceptical about Mr Hunt’s ability to stick to his current spending plans, I am at least that sceptical that Rachel Reeves will preside over deep cuts in public service spending,” he added.

As well as copying Labour’s proposals on non-doms, the chancellor also emulated its plans to extend the windfall tax on the profits of energy and gas firms until 2029.

Labour, however, insists its proposals would still raise more than the government in this area, as it would also raise the tax as well as closing tax allowances for investment, which it calls “loopholes”.

It says the money raised from that tax would fund its planned green investment scheme, which it dramatically scaled back last month.

Speaking to BBC Radio 2, Prime Minister Rishi Sunak said Labour “haven’t been straight” about how it would be funded, repeating an attack that the borrowing it entailed would force the party to put up taxes.

But in a bid to turn the tables on the government, Labour has seized on Mr Hunt’s suggestion that the Conservatives would seek to abolish National Insurance completely in the future.

The party branded the suggestion an “unfunded tax pledge” that would cost £46bn a year to deliver.