The Chancellor of the Exchequer, Rt Hon Rachel Reeves MP, has made a statement to the House of Commons about the state of public finances this week. Dorchester Chamber for Business President Steve Bulley summaries what we heard.
The full text of the statement can be found here, but please find a summary of her remarks below.
Summary
- Reeves said she had tasked Treasury officials with assessing the state of public spending. She said that work was now complete.
- She said she would expose the “scale and seriousness of what had been uncovered”; she would lay out the immediate tasks needed to respond to the assessment; and the long-term steps Labour would take to fix the economy.
- First, on the inheritance:
- There were things that she did not know when elected, a copy of the assessment would be published in the House of Commons library. Here is a link to the full audit document.
- It found a £35bn gap between the spending plans published in the Spring Budget 2024 and the Conservative spending plans.
- Considering the reserve money, there was a projected overspend of £22bn.
- If left unaddressed, it would mean a 25 percent increase in the budget deficit in 2024.
- She claimed there were matters the OBR were not aware of when they made their forecast:
- Rising costs for asylum support were hidden, she claimed, with a projected unfunded and undisclosed overspend of more than £6.4bn.
- Bail outs to rail companies to make up for passenger shortfalls during the pandemic, with an overspend of £1.6bn in the transport budget.
- Not enough money being set aside to fund support for Ukraine.
- When the last spending review was conducted, it was assumed pay rises would be two percent in 2024, and no guidance was provided by the previous Government about what resources were available for pay rises. The Labour Government would accept in full the suggestions of the Pay Review Bodies. The Government had agreed an offer to the junior doctors that the BMA were recommending to their members
- She would reduce spending by £5.5bn this year and by over £8bn next year:
- Departments to find savings to absorb as much of the £9bn needed to meet the full suggestions of the Pay Review Bodies.
- Stop all non-essential spending on consultancy and Government communications, and two percent savings in back office costs.
- Reversing commitments of the previous Government that they “could not fund”:
- The Advanced British Standard will be cancelled.
- Scrapping the Rwanda Scheme and the Illegal Migration Act.
- The Investment Opportunity Fund will be cancelled (impacting on Freeports and Investment Zones).£1bn of unfunded transport projects including work on the A303 and A27 will be scrapped.
- Retail sale of NatWest shares will be cancelled.
- A complete review of the New Hospital Programme.
- Adult social care charging reforms to be scrapped.
- Further in year savings:
- Protect the pensions triple lock but those not in receipt of pension credit or other eligible benefits will no longer receive the winter fuel payment.
- A Budget will be held on 30 October along with a full assessment from the OBR. It will involve difficult decisions to meet the fiscal rules across “spending, welfare, and tax”. It will include:
- No increase in taxes on working people: National Insurance, Income Tax, or VAT.
- A clampdown on tax avoidance and loopholes.
- The Chancellor launched a multi-year spending review setting Departmental budgets for at least three years. Final budgets for this year and 2025/26 will be set alongside the Budget on 30 October. They would include a review of the welfare system.
- The Chancellor announced changes to the fiscal framework that would come into effect in the Autumn:
- The Budget Responsibility Bill.
- The Treasury will be required to share with the OBR its assessment of immediate spending pressures.
- Public service budgets will be set every two years with a minimum planning horizon of three years.
She said she had spoken to the Chair of the OBR to brief him on the Government’s findings and reforms.
She announced the appointment of a Covid Corruption Commissioner to review contracts issued during the pandemic.
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