.jpg?20241123')
New British finance minister Rachel Reeves will on Monday spell out the scale of the public finances mess she says she has inherited, potentially paving the way for tax rises that critics say she could have been more candid about before the election.
Following Labour’s July 4 election victory, Reeves ordered an assessment of public spending needs which were not fully captured by official budget forecasts published in March.
Reeves repeatedly said the election winner would inherit the worst set of economic circumstances since the Second World War, but ruled out raising the rates of almost all main taxes to fix this.
Labour sources said yesterday that Reeves now expected to reveal a £20-billion hole in the public finances. The Office for Budget Responsibility – Britain’s independent fiscal watchdog – said in March that the previous Conservative government’s five-year budget plans left just £8.9bn of leeway to meet a self-imposed rule designed to stop debt rising.
Reeves has said that – while she would rather lower taxes than raise them – she would not make any pledges that she could not stick to under debt rules which Labour pledged to follow.
Anticipating criticism of her assessment of the finances, Reeves told reporters at a G20 finance leaders’ meeting in Brazil that she had been frank about the need to repair public services and stop debt rising.
“We have inherited a mess,” she said. “I’ve always been honest that the scale of the challenge confronting this new government is immense because of the damage done to the economy and to public services by the Conservatives.”
Reeves declined to comment on whether the hole was £20bn or how exactly she intended to cover it before addressing parliament.
The Conservatives immediately attacked the £20bn figure as a prelude to unnecessary tax rises.
“Labour’s claims are nothing but a fabrication – the books have been wide open since the OBR was set up 14 years ago,” Conservative former finance minister Jeremy Hunt said.
New Prime Minister Keir Starmer said on Wednesday “we have a more severe crisis than we thought as we go through the books” after 14 years of Conservative government, which ministers have said impacts everything from prisons to immigration and health.
But economists and analysts said that although a finance ministry review of spending needs might soften the political blow from tax rises, in economic terms there were no big surprises that Labour could not have foreseen. Reeves herself told the Financial Times in June that Labour did not need to win an election to find out about the bad state of public finances.
The Labour Party’s manifesto heading into the election spelled out small tax rises to fund specific commitments but other fiscal details were scant, aside from a general commitment to boost resources through higher growth. Neither main party set out how it would meet funding shortfalls forecast to hit the health service, and Labour accepted Conservative fiscal plans to cut spending on some public services which analysts had not considered tenable.
The fiscal picture is slightly worse in some areas than Labour might have expected. Borrowing in the three months to the end of June was £3.2bn higher than the OBR forecast in March.
Debt is the highest since the early 1960s at 99.5 per cent of GDP, 0.8 percentage points more than forecast, while the tax burden is already the highest since the late 1940s. Reeves has also hinted she will accept a public-sector pay award recommendation that teachers and health workers receive a rise of a reported 5.5pc, higher than expected.
She is set to outline that pay award on Monday too, along with the date of the next budget.
&uuid=(email))