Labour has committed to “ironclad discipline” with the public finances and cutting Britain’s debt burden if it gets into power, in an attempt to draw a clear dividing line with Tory leadership hopefuls promising billions of pounds in tax cuts.
Rachel Reeves, the shadow chancellor, will use a speech on Wednesday to bind a future Labour government to strict borrowing limits designed to protect the public finances while allowing it to lay the foundations for a growing economy.
As the candidates vying to replace Boris Johnson as prime minister promise tax cuts worth billions of pounds without being clear on how they would be funded, Reeves will argue “the tables have turned” on fiscal credibility.
“Any lingering sense that the Conservatives are the party of economic responsibility has been shredded to pieces over the past few days,” she will say.
Two former Tory chancellors and a former top civil servant at the Treasury have attacked the leadership rivals amid an apparent bidding war over tax cuts in the first week of the contest.
Leading economists have said the sweeping cuts would risk fuelling higher levels of inflation, while either driving up government borrowing or requiring steep cuts to public services.
Nadhim Zahawi, who took over as chancellor last week, announced tax proposals as part of his leadership bid worth an estimated £50bn a year – almost equal to the entire schools budget – while Sajid Javid, the former health secretary, made promises worth about £40bn a year.
Rishi Sunak, the former chancellor and early frontrunner in the race, has issued a coded attack on his rivals, describing unrealistic tax plans as “comforting fairytales” that would ultimately burden future generations.
Reeves’ announcement comes as Labour attempts to bury questions over its economic credibility that have lingered since the 2008 financial crisis and which were dragged out by the Conservatives during Jeremy Corbyn’s time as leader of the opposition.
Labour said the Tory leadership contenders’ tax promises would rip up the government’s own fiscal rules and create a £24bn budget deficit, with the national debt reaching 84% of GDP by 2026-27 as a result.
Reeves will say a Labour government would stick to fiscal rules that would include a promise to only borrow to invest, while committing to reducing the national debt as a share of the economy.
The shadow chancellor will tell an event hosted by the Resolution Foundation thinktank in London: “I’ve set out the fiscal rules which will bind the next Labour government. Rules which I will stick to with ironclad discipline.”
Reeves will argue that the Conservatives are failing to set out serious plans that would help people struggling amid the cost of living crisis.
“[Instead] we are presented with the extraordinary spectacle of a Tory tombola of tax cuts – with no explanation of what public services will be cut, or how else they’d be paid for.
“The level of unfunded tax cuts being bandied about this week would blow a massive hole in the public finances. Every single Conservative leadership candidate supported the government’s fiscal rules when they were passed into law in January, but now they are prepared to take a flamethrower to them.”