The Government is set to press ahead with tax rises and spending cuts, despite a boost to GDP which makes Britain the fastest-growing major wealthy economy.
The economy grew by 0.6 per cent in the second quarter of 2023, following expansion of 0.7 per cent in the first quarter.
It means that the UK economy is growing more quickly than any other member of the G7, while inflation data this week showed the rate of price rises remains under control.
But Labour ministers insisted the overall economic picture remains bleak ahead of the Budget in October – warning that higher taxes and cuts to spending are still on the table as part of a plan to balance the public finances.
Darren Jones, Chief Secretary to the Treasury, said: “The last Conservative Government left this new Labour Government with the highest tax burden since the 40s, the highest debt burden for over 60 years and a huge cost for just paying the interest on that debt every single month.
“And as the Chancellor and I set out in Parliament a few weeks ago, they left us with over £20bn of bills coming through the door here at the Treasury with no money to pay for it. That doesn’t sound like a good inheritance to me.”
Asked whether he was talking down the national economy, Mr Jones replied: “What we inherited from the Conservatives was the worst fiscal inheritance since the Second World War. We’ve got much, much more work to do to recover from the mess that we are left with.”
Shadow Chancellor Jeremy Hunt accused Labour of plotting to raise taxes even before the election and using the state of the economy as an excuse.
He said: “The Chancellor’s attempt to blame her economic inheritance on her decision to raise taxes – tax rises she had always planned – will not wash with the public. Labour promised over 50 times in the election they would not raise people’s taxes and we will hold them to account on their promises.”
The more positive picture on GDP growth will give Rachel Reeves extra room to manoeuvre at the Budget, economists predicted, because it will boost expectations of future tax revenues from the Office for Budget Responsibility (OBR).
Sanjay Raja, of Deutsche Bank, said: “The good news is that this should lift the overall size of the economy, leaving the Chancellor with a slightly better near-term outlook than what the OBR presented in March.”
Strong growth could also encourage the Bank of England to continue cutting interest rates in the coming months after the first reduction two weeks ago.
The Chancellor said: “The new Government is under no illusion as to the scale of the challenge we have inherited after more than a decade of low economic growth and a £22bn black hole in the public finances.
“That is why we have made economic growth our national mission and we are taking the tough decisions now to fix the foundations, so we can rebuild Britain and make every part of the country better off.”
She has repeatedly warned that taxes will need to rise to balance the public finances, after removing winter fuel payments from the majority of pensioners and announcing a Government efficiency drive.
