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New UK government cuts billions of pounds in spending to fix ‘unsustainable’ finances
Britain’s new finance minister, Rachel Reeves, told parliament on Monday that her Conservative predecessor had left public spending on track to overrun by £21.9 billion ($28 billion) this year and announced immediate cuts of £5.5 billion ($7 billion).
Reeves set out a further £8.1 billion ($10.4 billion) in cuts for the next financial year and promised more measures in a full budget on October 30, when the newly elected Labour government would need to make “tough decisions”, including on taxes.
Part of the cost comes from Reeves’ decision to give public sector workers pay rises costing a total of £9.1bn, following recommendations from independent pay-setting bodies which she says the Conservatives have ignored for too long.
Reeves said the state of public finances was not sustainable and posed a risk to economic stability if left unchecked.
“So it is up to us to make tough decisions now to make further savings throughout the year,” she told parliament.
The British Treasury in London, Great Britain. Photo: EPA-EFE
Elected to lead the world’s sixth-largest economy in a landslide victory on July 4, the Labor Party has spent much of its first three weeks in power telling voters that things are worse than expected in almost every area of public policy.
Reeves inherited a slow-growing economy, public sector net debt at its highest level since the early 1960s and a tax burden that is on track to hit a nearly 80-year high.
O UK The last government also faced job action in the public sector, and Reeves said he would accept recommendations for above-inflation pay increases for workers such as teachers and health workers.
In a statement seen by critics as an attempt to pave the way for future tax increases, Reeves accused the former Conservative government of covering up the true state of government spending and said it needed to make tough decisions to prevent the budget deficit from widening by 25% this year.
She made cuts to a range of projects including road building and railway restoration, said she would review a scheme to rebuild hospitals and set an ambitious target for government departments to cut more than £3bn from their budgets.
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Reeves also said it would save around £1.5 billion a year by stopping higher-income pensioners from receiving an annual payment for heating costs.
Reeves commissioned the public finance review upon taking office and used his announcement in parliament to attack the last government, led at different stages by Rishi Sunak, Liz Truss It is Boris Johnson.
“They promised solutions they knew could never be paid for: roads that would never be built, public transport that would never arrive, hospitals that would never treat a single patient.”
The Conservatives dismissed his accusations as a pretext for Labour to raise taxes.
“Today’s exercise is not economic, it’s political. She wants to blame the last Conservative government for the tax increases and cancellations of projects that she has been planning all along,” said Jeremy Hunt, who was finance minister in the Conservative government.
Paul Johnson, director of the Institute for Fiscal Studies (IFS), said some of the funding pressures appeared to be greater than expected.
“Some of the details are really shocking and raise some difficult questions for the last administration,” he said.
The UK’s non-partisan Office for Budget Responsibility, which reviews governments’ tax and spending plans, said it would review how Hunt’s budget was prepared in March, saying it was a serious issue.
Reeves stressed that he intends to stick to his party’s campaign pledges not to raise income tax, value-added tax and other major taxes.
Any further tax changes would be included in the formal October budget statement, which Reeves said would contain a new set of non-negotiable tax rules.