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Labour leader Sir Keir Starmer has refused to rule out any real-terms cuts to the budgets of Whitehall departments if the party were to win the next general election, saying he was focused on “reform” of public services.
Jeremy Hunt, the Conservative chancellor, has pencilled in deep cuts to some public services after the election. Under plans that have been described as a “poison pill”, spending would fail to keep pace with inflation.
Starmer said on Monday that “we are a party that always invests in public services”. However, asked twice if any departments would face real-terms cuts in spending, he did not rule out the possibility.
The Labour leader said he would not “turn on the spending taps” if his party were to win the election, expected to be held next year, raising the prospect of public sector austerity whoever leads the next government.
Starmer also defended his comments at the weekend that he admired the reforming zeal of Tory premier Margaret Thatcher in the 1980s. “I was giving Margaret Thatcher an example of the sort of leader who had that mission and plan. It’s obviously different from saying, ‘I agree with everything she did’,” he said.
He also said it was necessary for “sustained economic stability” to be provided. “This isn’t just rhetoric. When politics keeps lurching, when you lose control of the economy — as this government has, that loads political insecurity on to the backs of working people. And family finances take the hit,” Starmer said.
The Labour leader was speaking at the launch of a report by the Resolution Foundation and the Centre for Economic Performance on how to end the UK’s economic stagnation and bolster equality.
The report, which concluded the Economy 2030 Inquiry jointly led by the two think-tanks, found that British living standards had fallen far behind a group of five peer countries amid sluggish growth. This has left the typical household facing an annual shortfall in income of £8,300.
The report added that the gap would only be narrowed with a radical shift in government policy.
Hunt told the same event that the UK economy was suffering from a “sprained ankle” rather than a broken leg as he sought to play up national strengths, including technological innovation and education.
The chancellor said other advanced countries also had areas in which to improve economically and that western nations had fallen into a “low-growth paradigm” since the 2007-09 financial crisis.
“If we are going to go into dealing with the sprained ankle, rather than a broken leg, let’s do so from a perspective of positivity because we have so much going for us,” he said.
Hunt rejected the suggestion that Britain lagged its peers, noting that the UK’s gross domestic product since 2010 had grown faster than countries including Spain, Italy and Germany.
But productivity performance, the ultimate driver of living standards, has been weaker in Britain compared with its big economic partners, as have levels of business investment. UK labour productivity rose 0.4 per cent per year in the 12 years following the financial crisis, half the average rate of the 25 richest countries in the OECD club of nations, the report said.
The productivity gap between the UK and the US, Germany and France has doubled to 18 per cent since 2008. The UK also has the highest level of inequality of big European economies.
The report found that if UK business investment had reached the average level of the US, Germany and France since 2008, GDP would be almost 4 per cent higher, lifting wages by approximately £1,250 a year.
Hunt pointed to government policies to boost growth, including making the full-expensing capital allowance regime for companies permanent, as he emphasised that the UK had strong prospects.
“You are absolutely right to say why have all of us fallen into this low-growth paradigm,” Hunt said. “This is affecting all western nations and you have to have a plan to get out of it.”
The report found that part of the reason for the UK’s poor investment performance was its political and economic instability since 2010.
It pointed out that Britain had experienced Brexit, the brief regime of Liz Truss as prime minister, nine business secretaries and regular changes to the corporation tax regime.
Hunt acknowledged “political chop and change” after the 2016 referendum, leading to an “incredibly challenging” time politically, which was followed by the pandemic. “I hope we can have more stability going forward.”