Finance Minister Rachel Reeves will on Monday delay several “underfunded” roads and hospital projects and promise an above-inflation public sector pay rise as part of the Treasury’s plans to plug a £20 billion spending gap left by the Conservatives.
The Chancellor is expected to argue in his financial audit report to the House of Commons that he has inherited capital projects that are “unfunded and on unworkable timelines”. The audit will be seen as an indication of the government’s early efforts and priorities.
Reeves is also expected to accept the public sector pay commission’s recommendation for above-inflation pay rises, a step that economists say could cost up to 10 billion pounds.
Capital projects at risk include a £1.7 billion tunnel under the Stonehenge monument on the A303, the Lower Thames Crossing, a 14-mile road and tunnel in east London predicted to cost £9 billion, and the Conservative Party’s New Hospitals Plan, which promises to build or expand 40 NHS hospitals by 2030.
Labor figures show rising inflation has caused estimated costs to soar, potentially putting major road projects that have been years in the planning at risk. “A lot of these schemes don’t have funding secured,” one source said.
A final decision on the Stonehenge Tunnel may not be made until the Court of Appeal rules on the plans in the autumn. The future of the Thames Crossing Bridge is also uncertain, with a decision on its future being postponed for six months because of the general election.
Health Minister Wes Streeting told MPs this week it was “painfully clear” that plans for a new hospital would not be feasible by 2030.
“We want to see the new hospital plans completed but we do not want to give false hope as to when people will benefit from the facilities they rightly deserve,” he said.
As part of Reeves’ plan, millions of public servants will see their wages increase above the rate of inflation.
The NHS and Teacher Pay Bodies have reportedly recommended a 5.5% pay rise, with similar recommendations likely to come from other pay review bodies covering doctors, dentists, the armed forces, prison and police workers.
The wage hikes would help reverse years of declining wages, address staffing shortages and stave off the threat of labor unrest.
Mr Reeves is expected to approve the increase on Monday as he sets out his case that the Conservatives have left the government with a disastrous economic legacy, including a £20 billion surplus.
Despite the tough economic times, she is expected to argue that wage increases are necessary to avoid the damage to the economy seen in waves of strikes under Conservative governments.
As part of this process, Reeves has asked Treasury officials to analyse the cost of labour unrest to the economy, citing the knock-on impact that strikes in 2022 and 2023 would have on productivity.
The review is said to have found that teacher strikes cost the economy £300 million a day in lost working hours, with NHS industrial action costing the taxpayer £1.7 billion in total.
The cost of raising public servant salaries is not fully accounted for in current spending plans and will have to be funded through existing headroom, changes to fiscal rules or tax increases in the budget.
Before the election, Reeves refused to say whether public servants would get a pay rise, saying he needed to see the books before making a decision, but he recently said there was a “cost for not resolving” the negotiations and suggested the government was open to taking the pay body’s advice.
Labour sources blamed the Conservative government for the £20 billion public spending deficit, describing it as a “shocking legacy” and accusing the former chancellor of “presiding over a black hole yet still campaigning for tax cuts”.
They cited concerns about spending on the asylum system, welfare, defence and prisons, but the audit work is still ongoing and the final figure of £20 billion is subject to change as officials scrutinise departmental spending commitments.
Mr Reeves is due to confirm the timing of the budget, expected to be in late October or November, and plans for the spending review in a statement to the House of Commons on Monday.
She will also highlight some of the immediate pressures in areas such as the asylum system, prisons, welfare, defence and local councils, and how the Government intends to tackle these in the short term.
Economists expect Reeves to deliver a “review” of the bad news about the economy, which is likely to conclude that current spending plans are unsustainable and will require deep cuts to public services – a position they repeatedly stressed before the election.
