Britain Risks 'Doom Loop' of High Taxes and Borrowing, Warns Former Labour Minister

Former Labour Cabinet minister Liz Kendall has cautioned that Britain risks entering a "doom loop" of escalating taxes and borrowing if the government pursues further tax hikes in the upcoming Budget. Kendall, the former welfare secretary, urged Chancellor John Healey to focus on stimulating economic growth instead of imposing additional burdens on families and businesses.

"We cannot tax and borrow our way out of the problems that we're in," Kendall stated in an interview with Sky News. She added that Healey "needs to stay the course on the public finances and he needs to focus on getting that growth that we desperately need. Because otherwise we will... Britain will remain in this kind of doom loop of ever higher taxes and ever higher borrowing."

Kendall, who previously advocated for trimming the benefits bill, also suggested the government should "set a path for... starting to bring down that growth (in welfare spending) because the growth in the cost is too much."

Her remarks come as Chancellor Healey indicated that middle-class families would not receive government assistance with the rising cost of energy this winter. He acknowledged that many households and businesses are facing a "period of deep economic shock and pressure." While noting the economy's resilience with better-than-expected growth, Healey explained that the public finances are too strained to repeat the universal energy price freeze implemented by the previous Conservative government following Russia's full-scale invasion of Ukraine in 2022. Assistance in the forthcoming Budget is expected to be targeted towards families on benefits and those with very low incomes.

Experts predict that the energy price cap could increase by approximately 20 percent in January, potentially exceeding £2,000. Healey expressed awareness of the "punishing" energy costs for households and businesses but stressed that government support "needs to be targeted and it should be temporary" due to the state of public finances. He also suggested that departments seeking additional funding for public sector pay deals would likely not receive new money, stating, "People recognise these times that are tough for everyone, and what they do expect of a Government is to manage with the budgets we've got, deliver the public services they need."

The government is reportedly planning measures to address youth unemployment by reducing the costs associated with hiring young people. However, it has ruled out adopting Conservative proposals to cut employer National Insurance contributions for individuals under 25. In response to a House of Commons committee, the government defended previous decisions, including a £25 billion reduction in employers' National Insurance contributions, as "fair and necessary decisions… to restore the public finances, protect economic stability and fund the public services."

Shadow chancellor Andrew Griffith criticized Labour's policies, stating, "Labour have led Britain into a youth employment crisis. Their Jobs Tax has priced young people out of the labour market and their trade union-inspired employment red tape deters firms from hiring." He urged Healey to reconsider, suggesting the Budget is a critical opportunity for young people to secure employment.

Separately, a report from the Prosperity Institute think tank recommended freezing the minimum wage for five years to combat unemployment. The study argued that recent steep increases in the minimum wage have been detrimental to young people's employment prospects and suggested that a five-year freeze could create up to 600,000 jobs. A Conservative shadow business minister described the report's findings as "very sound" and urged the government to consider them.