UK Faces 'Tax Doom Loop' Without Growth, Warns Former Labour Minister

Britain risks being trapped in a cycle of escalating taxes and borrowing if it does not prioritize economic growth, former Labour welfare secretary Liz Kendall warned. She urged Chancellor John Healey to focus on stimulating the economy in the upcoming Budget rather than implementing additional tax hikes that could burden families and businesses.

Kendall echoed criticism of Labour's fiscal policies, stating, "We cannot tax and borrow our way out of the problems that we're in." She emphasized the need for the government to maintain its course on public finances while concentrating on achieving much-needed economic growth. "Otherwise we will... Britain will remain in this kind of doom loop of ever higher taxes and ever higher borrowing," she told Sky News.

Kendall, whose previous attempt to reduce welfare spending was opposed by some Labour MPs, also suggested that the government should outline a strategy to begin curbing the growth in welfare expenditures, citing the excessive cost increases.

Her remarks coincided with Chancellor Healey's acknowledgment that many families and businesses are bracing for a period of significant economic strain due to rising energy prices. While Healey noted the economy's resilience and better-than-anticipated growth, he indicated that the public finances are too constrained to repeat the universal energy price freeze implemented after Russia's invasion of Ukraine in 2022. Consequently, assistance in the forthcoming Budget is expected to be directed primarily towards benefit recipients and low-income households.

Experts forecast a roughly 20 percent increase in the energy price cap by January, potentially exceeding £2,000. Healey acknowledged the current "punishing" energy costs for both households and businesses but stated that government support must be "targeted and it should be temporary" given the state of public finances.

He also indicated that departments seeking additional funds for public sector pay deals would likely not receive new money, stating that the public expects the government to manage within existing budgets while delivering necessary services.

The government is reportedly considering measures to address youth unemployment by reducing the cost for employers hiring young people. However, plans to cut employer National Insurance contributions for those under 25, similar to proposals from the Conservative party, have been ruled out.

In a response to a parliamentary committee, the government defended the £25 billion increase in employers' National Insurance, characterizing it as part of "fair and necessary decisions… to restore the public finances, protect economic stability and fund the public services." Shadow chancellor Andrew Griffith urged Healey to reconsider, arguing that Labour's policies have contributed to a "youth employment crisis" and that the Budget represents a crucial opportunity for young people seeking employment.

Separately, a report from the Prosperity Institute think tank has proposed freezing the minimum wage for five years as a measure to combat unemployment. The report suggests that recent steep increases in the minimum wage have negatively impacted employment prospects for young people and estimates that a five-year freeze could create up to 600,000 jobs. Conservative shadow business minister described these findings as "very sound" and encouraged the government to adopt them.