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Chancellor must cut projects immediately after finance review
Image source, Getty Images
Image caption: Rachel Reeves claims the Conservatives masked the true state of the UK’s public finances and then “ran away”.Article information
The Chancellor is expected to announce billions of pounds worth of immediate cuts aimed at plugging a £20 billion black hole in the finances when she addresses Parliament on Monday.
Rachel Reeves’ plans are expected to include the cancellation of some road and rail projects, a reduction in spending on external consultants and a move to reduce waste in the public sector.
She will accuse the previous government of “covering up” deficits in departmental budgets and then “running away”.
However, the Conservative Party said the Chancellor’s message was designed to “mislead the British public” so she could raise taxes.
An internal Treasury audit of public finances will be published on Monday and is expected to show a gap of around £20 billion between tax revenues received and expected spending.
The Chancellor will tell Parliament this requires “immediate action” to restore economic stability and “fix the fundamentals of our economy”.
Projects that could be paused or cancelled include: the road tunnel under Stonehenge, Boris Johnson’s New Hospital programme and the Euston section of HS2.
Leading economists warned before the election that the math didn’t add up and that the new government would face a stark choice between raising taxes, cutting spending or abandoning its commitments to reduce debt in the medium term.
But the new government said it found the situation was even worse than it expected, describing it as “catastrophic”with extra demands on government coffers being uncovered as new ministers went through their departments’ accounts with a fine-tooth comb.
Ms Reeves is said to have been “genuinely shocked” by some of the findings.
However, she will not suggest at this point that tax increases will be necessary.
Instead, she will invite the Office for Budget Responsibility to undertake an assessment of public finances. She will also begin the process for a Spending Review, which looks at departmental budgets over the long term.
Budgets or similar fiscal events will be held only once a year, and Ms. Reeves is expected to set a date for the first one in the fall.
Insiders suggest that if the Chancellor had wanted to raise taxes she would have held an emergency Budget this week, but instead she will reaffirm manifesto commitments not to raise personal tax rates, including income tax.
Image source, Getty Images
Image caption: The tunnel under Stonehenge is one of the infrastructure projects that could be halted to save money
Ms Reeves is also expected to announce that some public sector workers will receive pay rises in line with recommendations from independent pay review bodies. That would mean above-inflation deals for teachers, members of the armed forces and prison staff, among others, but it would mean finding the money to pay for them too.
The Chancellor is said to believe the cost of funding the deals must be weighed against the cost of disruption to the economy caused by the strikes and the cost of failing to recruit and retain staff.
The Chancellor will also announce a new “Office of Value for Money” to identify and recommend savings, including in the current financial year, so that “low-value spending is cut before it starts”.
Last week, Home Secretary Yvette Cooper said the Conservatives’ plan to remove asylum seekers to Rwanda had cost taxpayers £700m, almost double the price tag previously in the public domain.
Other departments have identified spending needs not covered by current budget plans. On Sunday, Environment Secretary Steve Reed said his department had discovered the condition of flood defences was “far worse than we were led to believe”.
The Conservative Party said the state of public finances was clear before the election.
Former Conservative chancellor Jeremy Hunt accused the new government of “peddling nonsense”. The books were “wide open and what they show is a healthy and growing economy”, he said.
Shadow Treasury Secretary Gareth Davies said: “[Ms Reeves’] words and actions about supposedly saving taxpayers money are an insult when she is secretly planning to raise their taxes at the same time.”