Chancellor Rachel Reeves published a ‘spending audit’, outlining the fiscal realities uncovered by Labour since it took office earlier this month, and set out her plan to fill a £22 billion black hole in the public finances.
Addressing the House of Commons yesterday, Reeves claimed that the Conservatives had “covered up” the true state of public finances, as she announced Labour will:
- Scrap the universal winter fuel payment for millions of pensions
- Reduce spending by £5.5 billion this year and by over £8 billion next year, with Departments ordered to find savings
- Stop all non-essential spending on consultancy and government communications
- Reverse commitments of the Conservative government, including scrapping the: (i) Rwanda scheme and the Illegal Migration Act; (ii) the Advanced British Standard; (iii) adult social care charging reforms; (iv) the Investment Opportunity Fund; and (v) the retail sale of NatWest shares
- Cancel £1 billion of unfunded transport projects
- Meet the recommendations of the public sector pay review bodies for 2024/25 (which accounts for £9 billion of the £22 billion “black hole”)
Reeves announced changes to the fiscal framework, including those included under the Budget Responsibility Bill which will require any significant changes to taxation or government spending subject to a forecast from the Office for Budget Responsibility (OBR).
Reeves’ announced that her first Budget will be on 30th October 2024.
The MHP take
The central focus of Reeves’ speech was on Tory mismanagement of the economy, not least through her emphasis that the previous government had spent the reserve ‘three times over’ and had failed to disclose the dire state of the country’s finances to the House.
Here, we are reminded of the approach taken by the Coalition government, taking office from Labour in 2010, who seized upon a note written by Liam Byrne, chief secretary to the Treasury under Gordon Brown, to his Conservative successor in 2010 which said, ‘I’m afraid there is no money’ and spent the following years toxifying their predecessor’s economic record.
Reeves’ speech follows Cabinet Office Minister Pat McFadden’s request to colleagues to ‘bring out your dead’, assessing the spending commitments they inherited from the Tories and the fiscal hole them need to fill to meet them.
Against this backdrop, Reeves is fuelling expectations that she will announce further tax rises in the autumn budget on 30th October. Unsurprisingly, the Tories have seized on this, with former Chancellor Jeremy Hunt saying ‘She is laying the ground to break her word, and when she does, her first budget will become the biggest betrayal in history by a new chancellor, and working families will never forgive her.’
While it remains unlikely that Labour will break its triple lock tax manifesto pledge not to raise income tax, national insurance or VAT; potential tax increases for the budget include an increase in capital gains tax, inheritance tax rises, a reduction in tax relief on pensions, green levies and motorist taxes.
But the focus today, was clearing the decks of Conservative liabilities and ensuring budget decisions can be made from a position of maximum fiscal clarity.
If you would like to get in touch with the team, please contact Head of Public Affairs, Tim Snowball, at tim.snowball@mhpgroup.com