Rachel Reeves Scales Back Universal Winter Fuel Payments To Plug "Black Hole" In Public Finances
Chancellor Rachel Reeves announced "difficult decisions" to make savings across public finances (Alamy)
5 min read
Rachel Reeves has accused the Conservatives of leaving a £22bn “black hole” in the public finances that the Labour government will have to repair through “difficult" decisions like binning unfinished projects and restricting the winter fuel allowance.
In a House of Commons statement on Monday afternoon, the Chancellor said she would set out the “scale and seriousness” of the fiscal inheritance left by the previous Tory government, with the Treasury producing a fresh review of public finances.
She also announced the Autumn Budget will take place on 30 October, alongside an economic and fiscal forecast from the Office for Budget Responsibility (OBR) and a multi-year spending review that will look ahead to the years 2025 and 2026.
The previous government led by Rishi Sunak published its plans for day to day spending in the Spring Budget in March. However, Reeves said she was told on her first day in the Treasury a few weeks ago that the published numbers were not “even close” to what Sunak and the then-chancellor Jeremy Hunt actually expected to spend.
“We have inherited a projected overspend of £22bn, a £22bn hole in the public finances now, not in the future, but now, £22bn of spending this year that was covered up by the party opposite.
“If left unaddressed, it would mean a 25 per cent increase in the budget deficit this year.”
The Chancellor listed examples of specific budgets which were overspent, including on the asylum system and the Rwanda deportation plan, failing to budget for handing out cash to rail companies to make up for passenger shortfall, and not setting enough money aside to pay for support to Ukraine.
Reeves said the previous government overspent on the asylum budget by £6.4bn, and on the transport budget by £1.6bn.
She added that the OBR had not been made aware of these overspends for their March forecast earlier this year.
On the same day, the OBR has launched a review into the preparation of the March forecasts, with the independent body coming it was "made aware of the extent of these pressures at a meeting with the Treasury last week”.
The OBR added that the findings from the audit would constitute “one of the largest year-ahead overspends” outside of the pandemic.
“Instead of responding and dealing with the consequences, [the Conservative government] shirked the decisions that needed to be taken,” Reeves said.
“I will not repeat their mistakes. Where the previous government provided no transparency to the public and no certainty for public services, we will be open about the decisions which are needed and the steps that we are taking.”
The Government will accept in full the recommendations of the independent pay review bodies, meaning teachers and some NHS workers will get an above-inflation pay rise. Ministers have also offered a pay rise worth around 22 per cent to junior doctors in a bid to bring months of strikes to an end.
However, Reeves told MPs “difficult decisions” across spending, welfare and tax would have to be made, including making savings across all government departments.
She announced that universal winter fuel allowances for pensioners would be scrapped, so that only those in receipt of means tested benefits would receive the allowance.
“Let me be clear, this is not a decision I wanted to make, nor is it the one that I expected to make, but these are the necessary and urgent decisions that I must make,” she said.
The Government will also scrap former prime minister Rishi Sunak’s plans for the Advanced British Standard qualification to be rolled out across schools, as Reeves claimed he “didn't put aside a single penny to pay for it”.
The ‘Restoring Your Railway’ project will also be ditched, as well as plans to build 40 new hospitals, with the Government instead carrying out a “complete review of the new hospital program with a thorough, realistic, and costed timetable for delivery”.
After her statement, Reeves told reporters in a press conference that she found it "incredibly disrespectful that we now have Conservative previous ministers that are trying to pass the blame for their mistakes onto professional civil servants".
She also said she felt the previous government was "dishonest" when they made changes to National Insurance (NI) contributions earlier this year, but insisted that the Labour government would stick to its manifesto commitment to not raise NI, income tax or VAT – but did not rule out other tax rises in the Autumn Budget.
"We don't want to increase taxes, but we are in a position where there's a £22bn gap between the money that the previous government was spending and what they budgeted for," she said.
Shadow Chancellor Jeremy Hunt responded in the Commons by saying the “black hole” unveiled by Reeves was “fictitious”.
“Those public finances were audited by the OBR just 10 weeks before the election was called,” he said.
“We are now expected to believe that in that short period, a £20bn black hole has magically emerged. Every single day in that period, in fact, since January, in line with constitutional convention, [Reeves] has had privileged access to the Treasury permanent secretary. She could find out absolutely anything she needed.”
He added that she had “broken the trust” of people with an “utterly bogus attempt to hoodwink the public” and that they could expect a “U-turn” on increasing taxes in the near future.
Liberal Democrat Treasury Spokesperson Sarah Olney MP said that while the shortfalls in public spending were "truly shocking", the new government should focus on the NHS by cutting waiting lists and giving people the care they need.
"That's why we are urging the Government to invest in healthcare, in GPs, dentists and hospitals to kickstart the economy after years of Conservative chaos," she said.
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