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New UK Treasury chief cuts projects to save costs and confirms deal to end doctors’ strike
Britain’s new Labour government has cancelled several construction projects and withdrawn a winter fuel payment for millions of pensioners to cover what it calls a newly discovered 22 billion pound ($28 billion) deficit in the public finances.
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PAN PYLAS Associated Press
July 29, 2024, 12:05 PM ET
• 4 min read
LONDON — Britain’s new Labour government cancelled several construction projects and withdrew winter fuel payments for millions of pensioners on Monday to cover what it called a newly discovered 22 billion pound ($28 billion) deficit in public finances inherited from the previous Conservative government.
In her first major speech as Treasury chief, Rachel Reeves accused the previous government of covering up the dire state of the country’s finances, following a review of departmental spending she commissioned three weeks ago in the wake of Landslide victory for the Labour Party.
“They shied away from the tough decisions, put party before country and continued to make one unfunded commitment after another knowing the money wasn’t there, resulting in the position we have now inherited,” she said.
Reeves, the UK’s first female chancellor of the exchequer, said the audit found multiple sources of overspending pressures, with almost half of the total identified as a result of failing to account for future public sector pay premiums.
A £6.4 billion overspend on the asylum system was also identified, partly linked to the failed plan to send migrants to a third country. one way trip to Rwanda. Among other commitments, Reeves said spending on the war in Ukraine has not been fully funded.
While he did not announce any tax changes, Reeves set out a series of “hard” savings to recoup money in the coming years, including creating an office to identify “wasteful spending”.
Some transportation projects whose funding has not yet been determined will be eliminated, including a controversial plan to dig a tunnel near Stonehengewhile the previous government’s new hospital programme will be scrapped and replaced with one that has a “full, realistic and costed delivery schedule”.
Perhaps most controversially, Reeves announced that a winter payment currently going to all retirees to help pay for fuel will now be given only to those most in need. A plan to cap the costs individuals pay for their care in old age will be abandoned.
Reeves also warned lawmakers that there could be some tax increases when she delivers her first budget on Oct. 30. That will involve “making tough decisions … on spending, welfare and taxes.”
The Labour Party, back in power after 14 years in power, promised during the campaign not to raise taxes on “hardworking people”, saying its policies would deliver faster economic growth and generate much-needed additional revenue for the government. Reeves could seek to raise more revenue through other means, such as closing tax loopholes, particularly on capital gains or inheritance.
Critics, especially her predecessor Jeremy Hunt, argue that Reeves is trying to score early political points in the new Parliament and that she was well aware of the state of public finances during the general election.
“If you’re in charge of the economy, it’s time to stop talking trash about it,” Hunt said in response to Reeves’s speech. “She’s not fooling anyone with a blatant attempt to lay the groundwork for tax increases that she didn’t have the guts to tell us about.”
Reeves also announced a series of pay deals with public sector workers, from teachers to doctors. Most importantly, she said the government had reached an agreement with unions to end long-term strike of doctors in England in the early years of their careers. It will see so-called junior doctors receive a 22% pay rise over two years.
The Institute for Fiscal Studies, a respected economic think tank, accused both main parties during the election of a “conspiracy of silence” over the scale of the financial challenges the next government will face, with the country’s debt reaching almost 100% of national income, its highest level since the early 1960s.
But even the IFS seems to think the situation was even worse than anticipated and that Reeves is “within her rights to feel a little bit wronged”, especially when it comes to the asylum bill.
“It has always been clear and obvious that the spending plans she inherited were incompatible with Labour’s ambitions for public services, and that more money would eventually be needed,” said Paul Johnson, director of the IFS. “But the extent of funding pressures this year genuinely appears to be greater than could be discerned from the outside, which only adds to the scale of the problem.”