The Treasury audit: Political theatre or shocking revelation?

ITV News Economics Editor Joel Hills breaks down what we can expect from Chancellor Rachel Reeves' speech on the state of the UK's public finances

We knew it was bad but we had no idea it was this bad.

Crudely put, this is the message Chancellor Rachel Reeves will deliver when she unveils the audit of the "spending challenges" Labour has inherited in government.

Reeves will say that an assessment by Treasury officials has unearthed a gap in department spending plans that runs into "tens of billions of pounds" for this year alone - a funding gap she'll accuse the previous government of concealing in its desperation to cut taxes in the run up to the election.

The chancellor will say this is an overspend that no one knew about and one that runs across many government departments.

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The audit will detail the scale of shortfalls in budgets for prisons, the asylum system (Yvette Cooper claims the plan to remove asylum seekers to Rwanda has already cost £700 million) and a series of infrastructure projects, including roads, railways, schools and hospitals.

The audit will also show that there is not enough money set aside to cover the cost of the increasing pay for teacher and NHS staff, recommended by the independent review bodies, which Reeves will accuse the Conservatives of knowing about as they fought the election campaign.

We are just four months into the financial year and the new chancellor will tell us she has no choice but to hit the brakes and make immediate savings.

"Upon my arrival at the Treasury three weeks ago, it became clear that there were things I didn't know. Things the party opposite covered up from the country," Reeves will tell parliament.

"It's time to level with the public and tell them the truth."

The Treasury audit is set to reveal more about the pressures on government spending and public services than we knew previously.

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It will identify "black holes" we either didn't know existed or hadn't been measured with any accuracy.

But the broader picture, the Institute for Fiscal Studies (IFS) argues, should not be very surprising.

The IFS has been warning for months that the existing spending plans beyond next March look implausible - a view that was shared by the National Institute for Economic and Social Research, The International Monetary Fund and The Organisation for Economic Cooperation and Development.

During the election campaign, the IFS accused Labour and the other major parties of failing to engage with the risk there would need to be significant cuts or tax rises that weren't in the manifestos.

"I think there's a degree of political theatre [to the audit] and a degree of 'some of this really is worse than expected,'" said Paul Johnson, Director of the IFS.

"The government is probably getting people used to the idea that there's going to be more taxing or more borrowing in a Budget that we see in the Autumn."

IFS Director Paul Johnson told ITV News he thinks 'there's a degree of political theatre' to the chancellor's audit

The idea Labour would struggle to implement the spending plans they inherited is not remotely new - it has been widely predicted and for some time.

The recent economic news has been encouraging, but the combination of high debt, higher interest rates and unheroic economic growth means the government's finances are in a genuinely dreadful position and it really is a difficult time to be a chancellor.

But it's worth remembering two things.

Tax rises after elections is a time-honoured tradition. And the political blame game is as old as time - new governments always try to hang bad news on their predecessors for as long as they think they can get away with.

History, as they say, is written by the victors.

Tomorrow, the new chancellor is set to present us with her narrative.

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