Rachel Reeves will expose the damaging legacy the Labour government inherited from the Conservatives and set out the case for cuts to public spending, tax increases and the postponement of several major infrastructure projects.
She is expected to suspend work on a range of infrastructure projects, including Prime Minister Boris Johnson’s flagship plan for 40 new hospitals and the construction of a two-mile road tunnel that will bypass Stonehenge.
Reeves plans to announce a “value for money office,” an independent organization that will leverage agency resources to immediately identify and recommend savings measures for the current fiscal year.
She will talk about surplus public property. It will be sold and steps will be taken immediately to stop “unnecessary” expenditure on consultants.
Treasury sources said Monday’s announcement was not a “return to austerity” but was aimed at repairing the damage caused by “14 years of unfunded promises”, which have left a £20 billion hole in Government spending on vital public services.
The Guardian reported on Friday that Reeves is set to approve above-inflation pay rises for millions of public sector workers. Teachers and NHS staff will get a 5.5% pay rise, about £3.5 billion more than budgeted. The pay increases are seen as necessary to avoid the strain on the economy seen in a series of strikes under the previous government.
“Before the election I said we would be facing the worst legacy since World War II,” Reeves is scheduled to say Monday.
“The highest taxes in 70 years. Debt is through the roof. The economy is just coming out of a recession. I knew all of this. I spoke honestly about it during my campaign. And the hard choices it means.
“But when I arrived at the Treasury three weeks ago, it became clear to me that there were things I didn’t know – things the opposition party had been hiding from the country.”
The Labour manifesto pledges not to raise taxes on workers, instead promising to raise government funds through economic growth. Labour has ruled out raising income tax, VAT, national insurance or corporation tax, and has left on the table changes to capital gains tax, inheritance tax and pension credits.
Environment Minister Steve Reid refused to say on Sunday whether Labor would consider such a tax to plug the funding gap, but said he would “not shy away from difficult decisions”.
Paul Johnson, director of the Institute for Fiscal Studies, said it was “quite likely” that Labour would raise taxes in some way, arguing the £20 billion hole could be filled “by reversing the National Insurance cuts that Chancellor Jeremy Hunt has made in his last two budgets.” “That would be the easiest way to do it, if there’s no politics involved,” he told Times Radio.
Another leading economist suggested the government could raise billions of pounds through reforms to capital gains tax and inheritance tax.
Mr Reeves is expected to announce the Office for Budget Responsibility’s forecasts to coincide with the Budget and Spending Review later this year, the date of which is due to be announced on Monday.
She will commit the government to one major fiscal event per year, in a bid to end the “surprise budgets” that have so far brought uncertainty to markets and households across the country.
She is expected to scrap or scale back several big infrastructure projects, including the £500 million Rail Reconstruction Fund, the £1.7 billion A303 dual carriageway Stonehenge bypass and the A27 Arundel bypass in West Sussex.
Reeves would say: “It’s time to tell the public the truth, honestly.”
“The previous administration refused to make the difficult decisions, concealed the true state of our finances, and ran away. I will never do that.”
“The British people voted for change and we will deliver that change. I will restore economic stability. I will not stand by and allow this to happen again.”
“We can repair the foundations of our economy, rebuild Britain and make every part of our country better.”
Liberal Democrat finance spokeswoman Sarah Olney MP said it was clear that years of Conservative incompetence had left the UK economy “in desperate need of repair”.
Gareth Davies MP, shadow chancellor to the Treasury, said Mr Reeves was “trying to trick the British people into accepting Labour’s tax increases”.
“She just wants to pretend the OBR, which was set up by the Conservatives and whose forecasts have been used in every previous Conservative government’s budget, doesn’t exist in order to lend credibility to her statements; like her book, this announcement is a copy and paste from something done decades ago.”
“But her words and actions about saving taxpayers’ money are an insult as she secretly plans to raise taxes at the same time.”
