Labour Has No Choice But to Break Its Promises

(Bloomberg Opinion) -- Most governments, of whatever political stripe, would agree there’s never enough money to go around. It’s a problem that’s particularly acute for UK Prime Minister Keir Starmer as he prepares to launch the results of his year-old administration’s “comprehensive spending review,” setting out budgets for each department for the next few years.

Starmer’s team not only lacks the funds to deliver what they’d like to do during their time in power, they don’t have the money to do what they’ve already committed to. Something has to give, and Chancellor of the Exchequer Rachel Reeves will ultimately need to do at least one of three things: slash spending, raise taxes or increase borrowing. Right now, she’s not being clear which. Voters deserve at least a vague understanding of what tough decisions need to be made.

It’s a clarity Starmer and Reeves have seemed unwilling or unable to provide; instead, they’ve hoped for economic expansion to bring additional tax revenue to pay for their plans. Unfortunately, the boom is proving elusive: The OECD has downgraded Britain’s growth forecast to 1% from 1.2% for 2026.

Much of that contraction, the OECD said, is due to Donald Trump’s tariffs, which may not be as punitive for the UK as on much of the rest of the world. But they will still likely have a significant impact, even if Britain can stave off 50% tariffs on steel within the capricious president’s capricious new five-week deadline.

Trump’s move to pull back in Ukraine is also adding pressure on the British economy. This week, a UK government defense review confirmed an “ambition” to raise spending on the military to 3% of gross domestic product, a hike Starmer believes is necessary as he continues to pursue his plan for a “coalition of the willing” to counter the threat from Vladimir Putin in Ukraine without depending on the US. As my Bloomberg Economics colleague Dan Hanson has calculated, this would cost £17.3 billion by 2029-30, the equivalent of an increase in debt of 1.5 percentage points. NATO, which is preparing to gather this month, is pushing for a hike to 3.5% of members’ GDP, rising to 5%, which Bloomberg calculates would cost the UK £350 billion ($475 billion).

When she sets out her CSR on Wednesday, Reeves should be overt about how much the unfavorable economic winds are driven by Trump — voters are more likely to accept pain if they understand the reasons for it. And she should go further and provide a coherent sense of what the government believes, an ideological prism though which tricky choices can be viewed. It's something severely lacking from the government’s messaging.

Having witnessed the disastrous mini-budget of Liz Truss and following painful tax rises on farmers and employers in last October’s budget, the mantra from Starmer and Reeves had been that the books would be balanced not via further borrowing or tax increases but through departmental cuts. That commitment was difficult for a left-leaning government that would rather be spending money on things it cares about, but it was at least intellectually coherent.

It’s no longer clear that the government will stand firm. Last month, Starmer unwisely gave in to pressure from his own MPs to partially reverse the move to withdraw winter fuel benefits from pensioners. The reversal revealed a soft underbelly in the iron chancellor’s armor. Labour MPs are now pressing Reeves to also end a controversial two-child benefit limit and relax plans to remove some disability benefits, even if that means either increasing borrowing or taxes. If she does stick to her guns and square the fiscal circle by spending restraint, the UK will surely fall into the austerity she has vowed to resist. At minimum, she’ll have to let go of manifesto commitments such as halving violence against women and girls, making  homes more energy efficient and building affordable social housing. There is no way Labour can avoid breaking some of its promises; now we need to know the rationale shaping which promises they are. 

None of this is simple — which is why it’s important the government’s priorities are made explicit. Instead, Starmer is offering mixed messaging. In speeches and interviews, he’s said his first priority is the defense of the realm, but also that he sees nothing more important than protecting “working people” from the consequences of market turmoil, and also that he believes “profoundly in driving down poverty and child poverty.”

As Labour resists the threat from the upstart populist Reform UK party, Starmer has pledged to fix public services, slash NHS waiting lists and reduce immigration by making it harder to come to Britain to work and study (which Bloomberg estimates will cost £9 billion by 2028-2029.) At the same time, the PM seeks to drive growth through a youth-mobility arrangement with the European Union that leaves him vulnerable to accusations of open borders. Does he avoid strikes by boosting public-sector pay or focus on keeping down inflation? Encourage entrepreneurship or tax the rich so that many quit these shores?

No wonder voters are confused — they’ve been given no framework within which to anticipate where the ax will fall or how else the government will make the sums add up. If Starmer’s team doesn’t lay out a clear vision for how they’ll approach these touch choices, then they’ll be more than confused — they’ll be let down. 

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This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Rosa Prince is a Bloomberg Opinion columnist covering UK politics and policy. She was formerly an editor and writer at Politico and the Daily Telegraph, and is the author of 'Comrade Corbyn' and 'Theresa May: The Enigmatic Prime Minister.'

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