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Sir Keir Starmer has raised the possibility of scrapping the controversial two-child allowance cap, which would cost £2.5 billion a year, sparking Conservatives to claim his new Labour government is about to make a “massive 180-degree turnaround” by raising taxes.
Starmer said on Monday he was in agreement with Education Secretary Bridget Phillipson, who said ministers would consider scrapping the cap as “one of several levers” in Labour’s strategy to reduce child poverty.
He added: “We will ensure that this strategy covers all the bases to reduce child poverty. No child should grow up in poverty.”
Former Conservative chancellor Jeremy Hunt said Labour had a worse-than-expected economic legacy and spending was out of control, paving the way for an autumn budget that would see tax rises.
Chancellor Rachel Reeves has claimed the Conservatives have left her with a huge amount of unfunded spending promises. She will highlight this “spending inheritance” in the Treasury audit due to take place next Monday.
Pressure to raise taxes is mounting as Starmer now suggests the government could stave off a revolt by Labour MPs by scrapping the child benefit cap introduced by the Conservatives in 2017.
“She’s taken us on a massive 180-degree turnaround,” Hunt told MPs during a debate on the King’s Speech, arguing that Reeves had left the economy well on its way to recovery.
The benefit cap means most parents with more than two children will not be able to claim additional child welfare benefits.
The Resolution Foundation estimates that removing the cap would cost £2.5 billion a year, meaning pressure is growing on Reeves. The Chancellor has said he will not make spending promises that are underfunded.
If the Chancellor decides to give all public sector workers a 5.5% pay rise, beating inflation, it could cost the government an extra £7-8 billion a year, according to the independent pay review body that is targeting 514,000 teachers and 1.36 million NHS workers in England and Wales.
Reeves is expected to respond to all of the pay review body’s recommendations next week, and she said she was prepared to meet them in full. She said there would be “costs” in terms of industry viability and recruiting and retention issues if she did not.
The finance minister promised before the election that he would not raise income tax, value-added tax, national insurance contributions and corporation tax, which together account for about 75% of total government revenues.
Hunt warned that Reeves was likely to raise corporate taxes, including the capital gains tax, which he said would stifle growth and ultimately influence voters.
Reeves’ budget is expected to be released as early as mid-October. The finance minister is due to announce the date next week, but she is laying the groundwork for a strong fiscal statement.
The “spending inheritance” audit is intended to highlight irresponsible Conservative planning and the broken parts of the public sector that Reeves must address.
Home Secretary Yvette Cooper outlined the details of the scheme on Monday, saying the cost of the Rwandan deportation system that Starmer scrapped was already £700 million.
Cooper called it “the most shocking waste of taxpayer money I’ve ever seen.” In the same vein, Reeves announced he was beginning the process of appointing a “COVID Corruption Commissioner” to increase the recovery of money from COVID-19 pandemic contracts that were lost to fraud and waste.
Elsewhere, the Labour government was dealing with a prison crisis, and Wes Streeting, the health secretary, claimed the NHS was “broken”. A Conservative official admitted: “It’s true, in some areas it’s really bad and you wouldn’t have known how bad it was when you were in opposition.”
An improved growth outlook in the fall budget could ease the need for tax increases or spending cuts, and help Reeves stick to his fiscal rule that the public debt will fall within five years.
However, Treasury officials said they acknowledged that it could take time for the economic improvements brought about by Labor’s growth stimulus measures, including the plan, to actually materialise.
“They piled on the problems, failed to make the hard decisions and then walked away, leaving us to pick up the pieces and sort out their mess,” Reeves said of the Conservative government.
Hunt said the economy grew faster than economists expected in May and inflation had fallen to 2%, adding that Reeves was looking for an excuse to introduce “the tax increases she was planning all along”.
