“There is a budget coming in October, and it is going to be painful”

These were the words of the Prime Minister yesterday in the Rose Garden of Downing Street where he warned the nation of tough times to come.

In one of the most important speeches of his prime ministership thus far, Sir Keir Starmer signalled that there would be “big asks” come October. While Starmer gave no indication of what form the fiscal tightening may take, the speech seemingly paved the way for higher taxing and lower spending alongside further borrowing. This “short-term pain” he reasoned, would be worth it for the “long-term good”.

While Starmer reiterated Labour’s manifesto pledge that taxes would not rise in relation to national insurance, VAT and income tax would not go up, the speech has renewed speculation on what taxes could be increased. For example, many commentators are speculating that Downing Street may look to increase inheritance tax and/or capital gains, alongside making changes to the tax relief on pensions.

Unsurprisingly, Starmer cited the economic situation inherited by the Conservatives as the primary reason for such fiscal tightening, saying that “We have no other choice given the situation that we are in”. Here, he reiterated claims that the Labour government unsurfaced a major shortfall in the nation’s finances, ad that this would require serious attention to manage.

Starmer’s comments follow that of the Chancellor Rachel Reeves who – in an address to parliament in July –announced emergency savings measures to sure up what she identified as a £22bn “black hole”. According to the Chancellor, the previous Conservative government “[covered] up the true state of the public finances” and oversaw such a shortfall. Here, she stated that “Upon my arrival at the Treasury three weeks ago, it became clear that there were things I did not know”.

Attention now turns to the release of the budget on 30 October.

Sir Starmer is today in Berlin, meeting Chancellor Olaf Scholz as he looks to start a new cooperation treaty with Germany. Here, the Prime Minister is hoping to improve bilateral relations in areas including energy security, tech and science, and hope to “turn [a] corner on Brexit”.

According to No.10m a new treaty with Europe’s largest economy could come as early as Q1 2025, though exact details remain unclear.