image source, Good pictures
The Chancellor is set to announce billions of pounds worth of immediate cuts in a bid to plug a “black hole” in public finances when he addresses Parliament on Monday.
Rachel Reeves’ plans include canceling some road and rail projects, cutting spending on outside consultants and a push to cut public sector waste.
He would accuse the previous government of “covering up” shortfalls in departmental budgets and then “running away”.
However, the Conservatives said the chancellor’s message was designed to “deceive the British public” so he could raise taxes.
The Treasury’s internal audit of public finances will be published on Monday and is expected to show a gap of around £20bn between incoming tax revenue and expected spending.
The president will tell parliament that this requires “immediate action” to restore economic stability and “fix the foundations of our economy”.
Projects that could be suspended or scrapped include a road tunnel under the Stonehenge World Heritage Site and Boris Johnson’s new hospital plan.
Before the election, leading economists warned that the sums did not add up and that the new government would face a stark choice between raising taxes, cutting spending or abandoning its pledges to reduce debt over the medium term.
But the incoming government said the situation was worse than expected, describing it as “disastrous”, with new ministers combing their departments’ accounts with a fine-toothed comb and more demands on the government purse.
Ms Reeves was said to be “genuinely shocked” by some of the findings.
However, he would not suggest at this point that a tax hike is needed.
Instead he will call on the Office of Budget Responsibility to evaluate public finances. He will also initiate the process of Expenditure Review, which looks at departmental budgets over the long term.
The Budget or similar financial events are held only once a year, and Ms Reeves is expected to set her first date in the autumn.
If the president wanted to raise taxes, he would have held an emergency budget this week, but he would instead reiterate pledges in the report not to raise personal tax rates, including income tax, insiders said.
Pat McFadden, chancellor of the Duchy of Lancaster, told the BBC that Monday’s announcement was about “difficult spending decisions”.
“It’s true that we knew we were going to inherit a difficult situation, but what we found in the weeks we took office was that it was even tougher because of what we found. The election.”
Michael Saunders, a senior adviser at Oxford Economics, thinks there will be “a small contraction in public spending” but it is “still very difficult” and a big tax rise.
“I expect the chancellor will be able to find various examples of projects that the government has announced but not funded or underfunded or over budget or behind schedule,” he told the BBC’s Today programme.
“Therefore, the chancellor can say that public finances are worse than feared.”
image source, Good pictures
Ms Reeves is also expected to announce pay rises for some public sector workers in line with recommendations from independent pay review bodies. This would mean above-inflation solutions for teachers, members of the armed forces and prison staff, but also finding the money to pay for it.
The chancellor is said to believe the cost of funding the contracts must be weighed against the cost of disrupting the economy from strikes and the cost of failing to recruit and retain staff.
The Chancellor will announce a new “Office of Value for Money” to identify and recommend savings, including in the current financial year.
Last week, Home Secretary Yvette Cooper said the Conservatives’ plan to remove asylum seekers to Rwanda would cost taxpayers £700m, double the price previously in the public domain.
Other departments have identified spending needs that are not covered by current budget proposals. On Sunday, Environment Secretary Steve Reid said his department had found that the state of flood protection was “much worse than we were led to believe”.
The Conservative Party’s public finances were clear before the election.
Former Tory chancellor Jeremy Hunt accused the new government of “stupidity”. The books were “wide open, showing a healthy, growing economy,” he said.
Shadow Transport Secretary Helen Whatley told BBC Breakfast: “Labour has taken a strong economy – the fastest growing in the G7, historically low unemployment – which has put them in a positive position.”
He said Labor was “undoubtedly setting up a narrative” to impose taxes.
