British finance minister Rachel Reeves on Thursday announced changes to fiscal rules that would see billions of dollars invested in the centre-left government’s first budget, but warned of tax rises and spending cuts.

The highly anticipated October 30 budget will be the first under Labor after 14 years of right-wing Conservative rule, and Prime Minister Keir Starmer has already warned of “painful” decisions.

Reeves explained the new fiscal rules in a column in the Financial Times, saying sustainable growth requires “a responsible, long-term plan to invest in the future and improve living standards.”

The Labor government has made growing the UK economy a priority after winning a national election by a landslide in early July.

Reeves confirmed “taxes will have to go up” in the budget without revealing many details about what taxes would be included.

Labor has pledged not to increase taxes on “employees”, but there is speculation that other taxes, such as capital gains, will also be targeted.

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Making sure daily expenses match income is part of his first financial rule.

Reeves wrote that this rule “will hurt the most,” given the current state of public finances and the need to invest in public services.

The government has vowed to undo what it says is a £22 billion ($28.5 billion) black hole in the public finances inherited from the previous government.

Reeves will also make a technical change to the way debt is measured to free up funds for more investment.

He did not detail the exact mechanism, but many British newspapers stated that Reeves would use a broader measure of debt that takes into account future investment returns, which would reduce the debt level.

“We need to invest more to grow our economy… but we can only do this if we change the way we measure debt,” he told the BBC.

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High level of debt

The UK faces its highest government debt since the 1960s, approaching 100 per cent of British gross domestic product, according to official data.

Public debt also increased more than expected in September.

Still, the government got a boost from some positive data last month.

While the British economy recovered in August after a two-month recession, inflation fell below 3 percent. Bank Britain’s two percent target.

In its latest global update, the International Monetary Fund forecasts the UK economy will grow 1.1 per cent this year, down from its previous forecast of 0.7 per cent.

The IMF kept its forecast for the UK’s growth next year at 1.5 percent.

Source: AFP