UK PM Starmer announces plans for a "difficult" October budget to address financial shortfall.

• The upcoming October budget will be "painful," as Keir Starmer, the U.K. Prime Minister, announced on Tuesday that the government will have to make spending cuts to address a £22 billion ($29 billion) financing shortfall.
• After announcing plans to test winter fuel payments made to pensioners, Starmer stated that the U.K.'s public finances were "worse than we ever imagined" and that "difficult" decisions would have to be made.

The upcoming October budget will be "painful," as Prime Minister Keir Starmer announced on Tuesday, in order to address the £22 billion ($29 billion) financing shortfall.

In a speech at 10 Downing Street, Starmer stated that due to the current circumstances, we are left with no other option.

He stated that those with broader shoulders should carry the heavier load, which is why they are tightening up on non-doms, specifically U.K. residents whose domicile is outside the country for tax purposes.

"Starmer stated that those responsible for the mess should be held accountable and that the water regulator's powers will be strengthened to enforce tough fines on water companies that have caused sewage to flood our rivers, lakes, and seas. However, he also acknowledged that he would have to turn to the country and make significant requests of them to accept short-term pain for long-term benefits, as the solution requires a difficult trade-off."

The U.K. parliament is on a summer break between July 30 and Sept. 2, but the new government, led by Starmer's Labour party, has been facing challenges such as a series of riots involving far-right groups and a capacity crisis in the prison system.

The Labour administration has benefited from the ongoing fall in inflation, the start of interest rate cuts by the Bank of England, and the economic return to growth for the past two successive quarters.

Labour's electoral manifesto outlines plans to raise £7.35 billion ($9.71 billion) by 2028-29 through measures such as closing tax loopholes on nondomiciled individuals, removing tax breaks for independent schools, and introducing a "time-limited windfall tax" on oil and gas firms.

In their policymaking, Starmer and Finance Minister Rachel Reeves have consistently emphasized the importance of both economic growth and fiscal responsibility.

In his Tuesday address, Starmer stated that the U.K.'s public finances were "more dire than we ever anticipated" and accused the prior administration of concealing a £22 billion "deficit."

The previous Conservative government was accused by Labour of overspending and poor budgeting, resulting in a shortfall figure announced at the end of July.

In July, Simon Case, the head of the British civil service, received a letter from former Finance Minister Jeremy Hunt, expressing his concerns about Labour's assertions regarding the public finances as "deeply troubling."

The £22 billion spending gap, according to Hunt, differs from the "main estimates" presented to Members of Parliament on July 17. He stated that this discrepancy in figures could harm the reputation of the politically-neutral civil service, as estimates are endorsed by its top officials.

An independent research group, the Institute for Fiscal Studies, has previously contended that Labour was aware of the general scope of the deficit and did not disclose the necessary cuts and tax increases during the election campaign to sustain public services.

Wealth creation is the top priority of this Labour government, as stated by Starmer on Tuesday,

Starmer stated that he had not desired to implement a means test for the Winter Fuel Payment, a benefit for pensions, which has been met with controversy even among his own party members, but emphasized that more challenging choices would follow.

In the October budget, Starmer stated that taxes would not increase for "working people," although he did not provide further details. Previously, Labour had promised not to raise value added tax, national insurance, or income tax.

The speech was criticized by politicians from other parties.

Zack Polanski, the deputy leader of the Green Party, stated on social media network X that Keir Starmer's tough choices are to not tax the wealth of billionaires, as Rachel Reeves, the shadow chancellor, said their spending commitments didn't require extra investment when asked about a wealth tax.

Kemi Badenoch, a potential successor to Rishi Sunak as party leader, stated that Starmer's speech exposed the fact that he made promises he couldn't fulfill, according to BBC News.

Meanwhile, Ed Davey, the leader of the Liberal Democrats, stated that the Conservatives left behind a "toxic legacy" that required "bold and ambitious action from the government to fix."

CNBC has contacted the Conservatives for comment.

Investors are still waiting for concrete announcements from the government, according to David Denton, technical consultant at investment management firm Quilter Cheviot.

"During Labour's election campaign, the party highlighted the taxes it would not seek to raise, such as National Insurance, VAT, and income tax. As a result, an increase in Capital Gains Tax (CGT) seems plausible, according to Denton. However, an alignment with income tax rates or even a minimal increase might impact investor behaviour."

If anti-forestalling measures are not announced alongside any plans, there is a possibility of a surge in properties on the market as homeowners rush to sell their investment properties before new legislation takes effect.