Keir Starmer will cast off the gloom that has dominated his early days in power and pledge to “build a new Britain” as the Treasury examines tweaking the fiscal rules to allow more capital spending.
Sources said the government could use next month’s budget to change the way its five-year debt rule is assessed, which could allow more spending on housing, roads and hospitals.
After a bruising few days leading up to Labour’s party conference in Liverpool, the prime minister will tell the country there is “light at the end of the tunnel” but that they must first join a “shared struggle” to get there.
“A project that says, to everyone, this will be tough in the short-term, but in the long-term it’s the right thing to do for our country. And we all benefit from that,” he will tell the hall.
In his first conference speech in power, he will also warn there are no easy answers to the country’s problems and that he cannot offer “false hope” about the challenges that lie ahead, with Labour warning of more tough choices.
Multiple cabinet ministers and senior party figures said the government has sounded too pessimistic during its early weeks in power, talking too much about its fiscal inheritance and not enough about its long-term plans.
But Starmer will mount a defence of his downbeat rhetoric over the past nine weeks, describing it as an honest prescription that would resonate with a public fed up with broken promises.
“I know this country is exhausted by and with politics. I know that the cost of living crisis drew a veil over the joy and wonder in our lives and that people want respite and relief, and may even have voted Labour for that reason,” he will say.
“Our project has not and never will change … But I will not do it with easy answers. I will not do it with false hope.”
The prime minister will also issue a veiled warning to his political critics who have been uneasy about the tone of the early days. “It will be hard. That’s not rhetoric, it’s reality,” he will say.
“Just because we all want low taxes and good public services, does not mean that the iron law of properly funding policies can be ignored.
“We have seen the damage that does, and I will not let that happen again. I will not let Tory economic recklessness hold back the working people of this country.”
Government sources said that Rachel Reeves was considering changing how its fiscal rules were calculated to allow billions of pounds more in capital spending.
The chancellor told the conference she believed the Treasury undervalued public investment and wanted to change the way public spending was seen at the top of government.
“It is time the Treasury moved on from just counting the costs of investment in our economy to recognising the benefits too.” She added: “Growth is the challenge and investment is the solution.”
At a later business event, she said: “There are difficult decisions coming in the budget, but what I can promise is we will always give value for money for taxpayers. And we will look at the value and benefits of investment and not just the costs.”
One idea Reeves is weighing up is to exclude losses for the Treasury on the Bank of England winding down its crisis-era quantitative easing bond-buying programme, which experts say could open up headroom in the public finances worth up to £15bn.
Her comments reflect a growing belief in government that its fiscal rules – in particular how the five-year debt rule is assessed – need to be updated to encourage investment and spur growth.
Critics have accused the Treasury of prioritising short-term debt reduction ahead of its long-term infrastructure and growth needs, pointing to decisions such as the cancellation of the HS2 rail line as an example.
Government officials added that they are also working on a plan to publish estimates for how much new capital projects could stimulate growth, as well as how much money they would generate directly for the Treasury.
Painting a more optimistic picture of the country’s long-term economic future, Reeves told delegates: “What you will see in your town, in your city, is a sight that we have not seen often enough in our country: shovels in the ground, cranes in the sky, the sounds and the sights of the future arriving. We will make that a reality.”
In his own speech on Tuesday, Starmer will pledge “a great reforming government” and say that the election was a vote for “more decisive government” that would drive forward change at a great pace.
“But again, I have to warn you, working people do want more decisive government. They do want us to rebuild our public services and they do want that to lead to more control in their lives. But their pockets are not deep – not at all. So we have to be a great reforming government.”
He will lay out the specifics that the promise of change will deliver through economic growth, including bringing down NHS waiting lists, reducing crime on the streets, stronger borders, clean energy and rising living standards.
Starmer will confirm the government will introduce a reformed growth and skills levy, replacing the apprenticeship levy, to offer greater flexibility for employers and learners, including through shorter apprenticeships.
“The truth is that if we take tough long-term decisions now … then that light at the end of this tunnel, that Britain that belongs to you, we get there much more quickly,” he will say.
Reeves defended her controversial decision to cut the winter fuel allowance, telling the conference she had been forced to make unpopular cuts because of the economic inheritance left to her by the last Conservative government.
The unions, which have been a thorn in the government’s side throughout this conference, are organising a vote calling for the cut to winter fuel payments to be reversed.
“I know that not everyone in this hall or in the country will agree with every decision that I make. I will not duck those decisions, not for political expediency, not for personal advantage,” Reeves said.
“I judged it the right decision in the circumstances that we inherited. I did not take those decisions lightly. I will never take the responsibilities of this office lightly.”
Reeves also defended her decision to raise public-sector pay even in the face of the difficult spending outlook. At almost the exact moment, however, the Royal College of Nursing announced its members had rejected a 5.5% pay increase from the government.
