London, UK – Labour party has recently announced a shift in its approach to funding its NHS and school breakfast plans if it secures power, according to statements made by Rachel Reeves. Initially planning to finance these flagship policies by replacing the UK’s current “non-dom” tax regime, Labour now intends to rely on future savings in public spending to support these initiatives. This change in strategy comes after Chancellor Jeremy Hunt revealed a similar move during Wednesday’s Budget announcement, aimed at funding a reduction in National Insurance.
Reeves, the Labour counterpart to Hunt, acknowledged that this development would require adjustments to their original plans. In an interview with the BBC, she expressed the party’s commitment to scrutinize every pound in the government’s spending plans to ensure the necessary funding for these crucial policies. Despite the shift in funding mechanism, Reeves emphasized the importance of these initiatives as national and Labour priorities.
Originally, Labour had aimed to secure an additional £2 billion compared to the government by reforming the “non-dom” rules for UK residents based overseas for tax purposes. A portion of this funding was allocated towards providing free school breakfast clubs for all primary school students in England, as well as funding additional appointments in NHS hospitals, new CT scanners, and extra dentist appointments.
Following the Budget, Reeves dismissed the idea of implementing a new tax on wealth to compensate for the shortfall in the party’s spending plans. Instead, she outlined Labour’s intention to identify savings within future government spending to support these proposals. Ensuring that their election manifesto will be fully costed and funded, Reeves emphasized the party’s commitment to a thorough review of government spending plans in an “orderly way” before finalizing their funding strategy.
Labour’s self-imposed rule of not borrowing to fund day-to-day spending underscores their dedication to reducing debt as a share of the economy, a strategy seen as crucial for enhancing the party’s economic credibility with voters. However, this approach could limit their flexibility in office, particularly given the challenges posed by sluggish growth forecasts. Hunt’s plan to increase overall day-to-day government spending by 1% above inflation annually until 2029 could result in real-terms cuts for unprotected departments.
Paul Johnson from the Institute for Fiscal Studies pointed out that Labour’s acceptance of the cut to National Insurance has complicated their financial position, as this move costs the Treasury £10 billion annually. With uncertainties surrounding both parties’ tax and spending plans post-election, questions remain about the feasibility of sustaining public service spending under different leadership scenarios. It is clear that economic policy will play a crucial role in shaping the upcoming political landscape as parties jostle for voter support.