The bus fare cap in England will rise from £2 to £3 at the end of this year, Keir Starmer has said, as Rachel Reeves prepares to raid transport funding in this week’s budget.

The prime minister told an audience in Birmingham that the money to fund the £2 cap would run out at the end of 2024 and that the Labour government would then not be able to keep it at the same level after that.

The decision by the prime minister and chancellor comes despite heavy lobbying by Labour’s elected mayors to keep the cap in place, as revealed last week by the Guardian. Starmer insisted on Monday that working people would welcome such decisions as a necessary part of fixing the public finances after 14 years of Conservative government.

“The Tories only funded [the £2 fare cap] until the end of 2024, and therefore that is the end of the funding in relation to the £2 bus fare,” Starmer said.

“I do know that this matters, particularly in rural buses, and that’s why I’m able to say to you this morning that in the budget, we will announce there’ll be a £3 cap on bus fares until the end of 2025, because I know how important it is. So that’ll be there in the budget on Wednesday.”

The prime minister was giving a pre-budget speech in Birmingham to set expectations ahead of what ministers warn will be a painful budget for many people, including planned rises to national insurance, capital gains tax and inheritance tax.

Starmer and his senior ministers have spent the last few days defending their plans to increase taxes, despite having promised not to raise national insurance in their election manifesto.

Much of the debate has centred on who counts as a “working person”, given Starmer has repeatedly promised to protect such people. The prime minister sought to reframe that debate on Monday, insisting that working people would welcome “difficult decisions” to fix the country’s economy.

“It is working people who pay the price when their government fails to deliver economic stability,” he said. “They’ve had enough of slow growth, stagnant living standards and crumbling public services.”

He promised this week’s budget would help deliver “better days ahead”, saying: “It is our intention to take the tough decisions upfront, in the here and now, so we can rebuild the country on that stable foundation. You can take from that the tough stuff is coming in this budget.”

But asked whether he could guarantee that taxes would not rise in future budgets, he said: “I’m going to resist the temptation to say that at no point ever will there ever be an adjustment to everything else in the future.”

Many in Labour are concerned, however, that the prime minister’s promises of better times ahead will not be enough to shield them from a voter backlash after this week’s budget.

Richard Parker, the Labour mayor for the West Midlands, introduced Starmer at the Birmingham speech. But Parker is understood to be one of those particularly concerned about bus services, which the combined authority is subsidising by £50m to £70m a year.

While the spending of many government departments is likely to be cut this year to help close what the chancellor says is a £22bn funding shortfall, Starmer did announce an additional £240m to help jobseekers find work.

The money is designed to help roll out local services to help those who have been out of work with long-term health conditions get back into employment.

“The UK is the only G7 country where economic inactivity is still higher than it was before Covid,” the prime minister said. “That is not just bad for our economy, it’s also bad for all those who are locked out of opportunity.”

Starmer also gave a hint that the chancellor might freeze fuel duty once more at this week’s budget, telling a reporter from the Sun, which has campaigned to keep the freeze in place: “I do understand how important it is to you, your readers and others.”