Tories plan to wrongfoot Starmer by exposing Labour debt risk
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The Conservatives are planning to use the Budget to wrongfoot Sir Keir Starmer on borrowing in an attempt to show that, under Labour, Britain would go further into debt.
Rishi Sunak wants to take the fight to the Opposition in the 2024 election by creating a new dividing line over spending and borrowing, The Telegraph can reveal.
Government sources have indicated that they want to frame a vote for Labour as a vote to increase borrowing.
Downing Street officials are looking at toughening up how borrowing is treated in the Government’s fiscal rules in an attempt to “flush out” Sir Keir over the issue. Sources suggested this would put political and media pressure on the Labour leader to explain how he would fund his policies within the rules.
Government insiders believe the move would deliver a “sting in the tail” which will expose Labour spending plans such as its £28 billion commitment to tackle net zero.
Attempting to set the agenda for 2024 – which Mr Sunak has confirmed will be when the general election takes place – the Prime Minister has used his New Year’s message to commit to “reducing debt” as well as “cutting taxes”.
It follows days of fevered speculation about what lies in store in the Budget, which will take place on March 6.
In his message, Mr Sunak said that his New Year’s resolution was to “keep driving forward” after announcing tax cuts in the Autumn Statement. Hailing a 2p cut to National Insurance, which will take effect on Jan 6, the Prime Minister said: “We’re not stopping there”.
“We’re going further to grow our economy by reducing debt, cutting taxes, and rewarding hard work,” he added.
There has been much speculation over the Tory tax offer for voters, but party strategists want to shift more attention onto Labour’s spending. The Telegraph can reveal that one idea that has been mooted is changing the Government’s fiscal rules.
Under the current rules, debt must be on course to fall as a share of national income in five years’ time.
However, some figures in government believe that the test is too easy to meet and has fuelled perceptions that borrowing is consequence free so long as debt is falling after five years.
According to the Office for Budget Responsibility’s last forecast in November, debt interest spending is expected to be 4.3 per cent of GDP in 2023-24.
Sources have said the rules could be hardened by introducing a specific measure relating to the cost of servicing debt as a percentage of GDP or of overall public spending. No 10 officials are understood to be “sympathetic” to the idea.
The argument goes that such a change would force Sir Keir to show his hand on whether he plans to increase borrowing or not.
A senior government source said that the move would be a “sting in the tail” for Labour and would likely be accompanied by a further crackdown on the benefits bill, laying down a challenge to Sir Keir about whether to match ministers’ spending plans.
A senior Tory agreed that it would add teeth to the party’s attack on Labour over borrowing, with any change to the fiscal rules likely to be announced in the Budget.
“It can’t be that you go into an election where our main dividing line on tax and spend is the £28 billion, [No 10] need to come up with something better than that,” the source said.
“Doing something on the fiscal rules, if they can come up with something smart enough, would be sensible,” they added.
Olly Bartrum, a senior economist at the Institute for Government, said there was some merit to a measure related to debt affordability, but that this had to be weighed against the fact that there had been an “enormous amount of churn” in the fiscal rules in recent years – a factor which could make the Treasury reluctant to endorse another change.
The Downing Street idea is said to be in its early stages and has not yet been raised with the Treasury.
A source close to Jeremy Hunt, the Chancellor, said that under the current framework, Labour would already fall foul of the rules. “We don’t need to change our fiscal rules – Labour’s £28 billion a year borrowing binge already breaks our existing ones. Labour’s plan means more debt and more taxes for everyone,” they said.
A Labour source said that the party’s £28 billion pledge to fund green projects would be met in the second half of the next Parliament and would be subject to shadow chancellor Rachel Reeves’ own fiscal rules, which ban borrowing to fund day-to-day spending and commit to reducing debt as a share of GDP.
Meanwhile in his own New Year’s message, Sir Keir laid out Labour’s battlelines for the election, targeting discomfort over cost-of-living pressures and voters’ appetite for change.
The Labour leader said that 2023 had been “another tough year economically for millions of people” but that “hope” was “the fuel of change” and “the oxygen of a better future”.
He said Labour had a plan to end the cost-of-living crisis, deliver cheaper energy bills, “take back our streets” and “get the NHS back on its feet”.
“But most of all – I’m ready to renew our politics so it once again serves our country,” he said.
“I know that politics isn’t held in particularly high regard in Britain. But I have spent four years bringing the Labour Party back to service. And in 2024 – we can do the same for politics.”
This week, Mr Sunak will embark on a weekly series of visits across the country to sell his agenda, starting with a trip to the East Midlands on Jan 4 to promote his National Insurance cut.
It comes amid a war of words among Tory MPs about whether the Government should prioritise scrapping inheritance tax or taking action in other areas, such as on income tax.
A Cabinet source told The Telegraph that Mr Sunak could take a two-pronged approach. This would involve cutting the headline rate of inheritance tax as a way of assuaging those on the Right for whom it is a “totemic” issue, but pairing this with reductions in income tax to get “maximum bang for the buck” with voters.
