Budget will embrace 'harsh light of fiscal reality', but PM insists 'better days are ahead'

The Labour government's first budget will embrace the "harsh light of fiscal reality" but "better days are ahead", Sir Keir Starmer will say in a speech on Monday.

Chancellor Rachel Reeves will deliver the budget on Wednesday and setting the tone for the announcement, the prime minister will warn of "unprecedented" economic circumstances and the need to face "the long-term challenges ignored for fourteen years".

Sir Keir is expected to tell the country: "This is an economic plan that will change the long-term trajectory of British growth for the better."

Changes expected in the budget include a rise in employer national insurance, of at least one percentage point, and the scrapping of tax exemptions for private schools.

Labour pledged in its manifesto it would not increase taxes on "working people" and has explicitly ruled out rises in VAT, national insurance and income tax.

But, the party has been accused of hypocrisy over an expected decision to extend a freeze on income tax thresholds.

Ministers have also come under pressure to spell out who falls within the term "working people" after Sir Keir suggested those who make money from assets such as property would not fall within the definition.

On Monday, the prime minister is expected to say he will not offer the UK's problems as "an excuse", adding: "I expect to be judged on my ability to deal with this.

"We have to be realistic about where we are as a country. This is not 1997, when the economy was decent, but public services were on their knees.

"And it's not 2010, where public services were strong, but the public finances were weak. These are unprecedented circumstances.

"And that's before we even get to the long-term challenges ignored for fourteen years.

"An economy riddled with weakness on productivity and investment. A state that needs urgent modernisation to face down the challenge of a volatile world."

Pre-empting criticism, Sir Keir is expected to tell the public: "It's time we ran towards the tough decisions, because ignoring them set us on the path of decline. It's time we ignored the populist chorus of easy answers… we're never going back to that.

"If people want to criticise the path we choose, that's their prerogative. But let them then spell out a different direction."

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"Everyone can wake up on Thursday and understand that a new future is being built, a better future," he is expected to say.

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Ms Reeves is looking to fill what's thought to be a £40bn "black hole" to fix public services and shore up the economy.

Some spending plans have already been confirmed, including £1.4bn to rebuild crumbling schools and a £10bn cash injection for the NHS to tackle ballooning waiting lists.

Education Secretary Bridget Phillipson repeatedly said she could not speculate on how the chancellor intends to fill the black hole in the nation's finances during an interview on Sunday Morning With Trevor Phillips.

But, she said: "We set out in our manifesto that we would not be increasing VAT, national insurance or income tax on working people. We will hold to that. And in the payslips that they see after the budget, they will not face higher taxes."