Chancellor Rachel Reeves announces 'tough choices' to deal with public finances
Rachel Reeves has said there is a £22 billion hole in the economy, ITV News Political Correspondent Carl Dinnen reports
Words by ITV News Producer Hannah Ward-Glenton
Chancellor Rachel Reeves has announced a series of "incredibly tough choices" in a speech in the House of Commons on Monday, while warning of further "difficult decisions".
She said there is a £22 billion hole in the public finances, which she firmly blamed on the former Conservative government, saying they overspent this year’s budgets by billions of pounds after making a series of "unfunded commitments".
"Upon my arrival at the Treasury three weeks ago it became clear that there were things that I did not know, things that the party opposite covered up. Covered up from the opposition, covered up from this house, covered up from the country," she added.
"They had exhausted the reserve, and they knew that - nobody else did."
The chancellor repeated the phrase "if we cannot afford it, we cannot do it" throughout her speech, as she announced what she described as "difficult choices" needed to make financial savings.
The first example Reeves gave of the projected overspend by the previous Tory government was on the asylum system, including the “failed” Rwanda plan, which she said was more than £6.4 billion for this year alone.
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Reeves also confirmed earlier reports that the government had agreed an offer with junior doctors, with further details to be confirmed by Health Secretary Wes Streeting at a later time. She said industrial action in the NHS had cost the public purse £1.7 billion.
She referred to the possibility of tax hikes, which was frequently used by the Conservative Party to discourage people from voting for Labour in the run-up to the General Election.
Reeves said "we will not increase taxes on working people", adding there would be no change to basic income tax and VAT, but did not elaborate further on which other taxes could be altered.
She ruled out introducing a wealth tax after also denying she plans to “return to austerity” during her time as chancellor.
Monday's statement is not a budget, but rather the chancellor's analysis of the British economy based on a spending audit commissioned when she took on the role earlier this month.
Shadow Chancellor Jeremy Hunt described the statement as "a shameless attempt to lay the ground for tax rises she didn't have the courage to tell us about" before the General Election.
"Today she will fool absolutely no-one... She wants to blame the last Conservative government for tax rises and project cancellations she has been planning all along," he added.
"She should stop playing politics with Britain’s reputation and get on with running the economy," he added.
What are the key takeaways from Rachel Reeves' statement?
Winter fuel payments will be restricted to those on pension credits or other means-tested benefits;
The government has agreed a pay offer to junior doctors, the chancellor has confirmed, amid reports this would be more than 20% over two years;
The Labour government will not follow through on the Conservatives' pledge to build 40 news hospitals by 2030, after only six were built while the party was in government;
Adult social care charging reforms delayed by the Tories will not be taken forward, which Reeves says will save more than £1 billion by the end of next year;
Labour will appoint a Covid corruption commissioner to look into how public money was spent during the pandemic;
Infrastructure changes to the A303 and A27 will be cancelled;
From the autumn spending reviews will take place every two years with a three-year planning horizon “to avoid uncertainty for departments and to bring stability to our public finances”;
Rishi Sunak’s Advanced British Standard qualification will be scrapped, as the former prime minister “didn’t put aside a single penny to pay for it”.
Reeves criticised the previous government for being "dishonest" about the public finances when it pledged to cut national insurance, but she said she would not reverse them.
Paul Johnson, the director of the Institute for Fiscal Studies pointed out that the recent £20bn cut to national insurance contributions almost made up for the shortfall in public finances.
During the election, Labour was accused of not being honest about the state of the public finances, and when pressed on this by ITV News the chancellor said she had provided a "truthful account."
She went on to read out a letter published by the OBR on Monday quoting: "We were made aware of the extent of these pressures at a meeting with the treasury last week."
She also read out another segment saying: "If a significant fraction of these pressures is ultimately accommodated through higher DEL (department expenditure limits) spending in 2024-25, this would constitute one of the largest year-ahead overspends against DEL forecasts outside of the pandemic years."
The chancellor said the annual budget will be announced on October 30.
Public sector pay rises
After Reeves' statement, a number of department secretaries made pay rise announcements.
Education Secretary Bridget Phillipson announced that teachers and school leaders in England will receive a fully-funded 5.5% pay rise from September.
She said nearly £1.2 billion of additional funding will be provided to schools in the 2024/25 financial year to cover the costs of the pay award.
Home Secretary Yvette Cooper said police officers of all ranks in England and Wales will receive the extra money this year. They are in line for a 4.75% pay rise from September.
The Home Office “will provide £175 million additional funding in 2024-25 to forces to help with the cost of the pay increase”, she said, adding: “While the recommendation for a consolidated award of 4.75% is significantly above what had been budgeted for in the 2021 spending review, it is right that we accept it in full.
Justice Secretary Shabana Mahmood announced a 5% pay award for some prison officers and staff, with a “targeted focus on the lowest paid”, and a 6% rise for the judiciary.
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