Where’s the money coming from, Chancellor?

Next week Rachel Reeves will reveal an enormous funding deficit for core public services, having instructed Treasury officials to ask each department to list services that aren’t being financed adequately or are in danger of collapse or where there is some other hidden liability.

Just the liabilities we know about run to untold billions - from the NHS workforce plan to infected blood and post office compensation, to public pay sector pay awards, to the advanced manufacturing plan, to our creaking nuclear defence capability, to more mainstream defence requirements, to commitments on education and overseas development, to the welfare costs of an epidemic of physical and mental disability, and so on and so on.

It is easy to get to a financing hole of well over £50bn without even taking up the public sector equivalent of the floorboards, or worrying how many of our failing privatised services, water in particular, will end up as taxpayer costs.

None of this is a surprise. I have been banging on for countless weeks that the new government would inherit a fiscal disaster.

So with a face that looks as though she has chewed through a crate of lemons, Reeves is doing a George Osborne: just as in 2010, he built a political and economic strategy for an entire parliament around the charge that the previous Labour government had been spending money it didn’t have, she is blaming Johnson, Truss and Sunak for her toxic fiscal legacy.

This is raw and obviously sensible politics. It should allow her and Starmer to shift opprobrium for their remedies to their Tory predecessors.

There is one big difference between her and Osborne though. He was clear from the outset that his response would be austerity or deep cuts in public services. He had a plan.

In retrospect, even his own Tory colleagues wish he hadn’t been quite as zealous as he was in pursuing that austerity plan. But it was real, and simple to communicate.

But what on earth is Reeves’ plan?

Austerity is not available to her - partly because the mess she has inherited was caused in part by that very austerity, and because even the most Starmerite of the hundreds of Labour MPs won’t wear it.

Also, she has closed off the option of letting the national debt rise for longer, and mending the fabric through additional borrowing: her fiscal rules are never to be tweaked or re-interpreted, her colleagues tell me; it is as if she went up the mountain and a deity she calls Stability dictated them as permanent commandments.

So obviously she has to increase taxes. There’s nothing else for it. Her autumn budget will have to be a massive reset of the tax system to generate those colossal sums needed to fix the foundations of the state.

Except that approach too looks almost impossible - because Starmer promised in the election he wouldn’t raise money from the biggest available pools, namely income taxes on people, or VAT or corporation tax.

Reeves could increase taxes on capital, but that would alienate the investors and creditors she desperately needs to finance all those wind farms, and new homes and assorted infrastructure projects she and Starmer have promised.

What she’s left with is - possibly - reducing tax breaks on saving for a pension, taxing land and increasing the yield from council tax.

There are arguments for doing all or any of these. But quite how they would raise enough defeats me.

So it is all very well for Reeves and Starmer to blame and heap shame on Sunak and co. But this is their problem now, and at some point - presumably in the next three months - they’ll have to tell us where the money’s coming from to fix it.

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