Kemi Badenoch, leader of the Conservative Party, warned on Monday that Britain could be forced to seek a multi‑billion‑pound bailout from the International Monetary Fund if the governing Labour Party failed to boost economic growth and tackle rising borrowing costs. She said she was prepared to work with Prime Minister Keir Starmer to reduce welfare spending to avoid further tax increases.
Speaking to BBC Newsnight ahead of a planned speech in the City, Badenoch cited the 1976 crisis when Chancellor Denis Healey sought IMF assistance as a historical parallel. She told the programme that recent moves in borrowing costs — which she said reached a 27‑year high last week — were an indicator of weak growth and strained public finances and warned that Labour lacked a credible growth plan.
Badenoch said the Conservatives would offer co‑operation "in the national interest" and urged the government to agree cross‑party measures to curb welfare spending ahead of the November Budget. "If we're to cut spending and avoid more punishing tax rises at the Budget, crushing business confidence and pushing up inflation, Keir Starmer has to change his approach," she said, adding that the offer was not a "blank cheque".
Labour sources dismissed the approach as a gimmick. Chancellor Rachel Reeves last week sought to play down reports that she faced a £50 billion shortfall in public finances ahead of her second Budget and sought to dampen speculation about a fresh package of tax rises on firms and households.
Badenoch also accused Reeves of creating what she called a "tax doom loop" that would double the deficit over five years, increase taxes and push Britain closer to a bond crisis. Labour has maintained that it will set out its fiscal plans at the Budget.
The remarks come after the appointment of Labour MP Pat McFadden as Work and Pensions Secretary in a recent reshuffle. McFadden will head a merged department that incorporates responsibility for skills previously held by the education department, a move designed by ministers to emphasise the link between training and reducing long‑term benefit dependency. In a call with staff, McFadden said addressing the rising number of young people not in education, employment or training would be an early priority and that officials should "ask ourselves some tough questions" about how to join up skills and employment support.
Badenoch said the Conservatives would recommit to keeping the two‑child benefit cap, a policy Labour faces pressure from its backbenches and the public to scrap; the right‑wing Reform UK party has pledged to abolish the cap entirely. Earlier this year, Starmer abandoned proposed welfare cuts following a backbench revolt.
Financial markets have reflected concern about the public finances. Long‑term government borrowing costs rose to levels not seen in years amid global bond market volatility and unease over ministers' ability to rein in borrowing, although yields on 30‑year gilts fell back to last month's levels after the recent spike.
Badenoch is due to deliver a longer speech in the City on Tuesday, and the government prepares for the November Budget, which ministers say will set out the next stage of fiscal policy. Political parties are signalling divergent approaches to welfare, taxation and growth as policymakers and markets watch borrowing costs and economic data for signs of stability or further strain.