Rachel Reeves has accused her outgoing Chancellor Jeremy Hunt of lying about the state of the national finances when he inherited a Labour government, a claim which Mr Hunt dismissed as “utter nonsense”.
What’s the problem?
Since Reeves took office, an audit carried out by the Treasury has found that government departments are likely to overspend by £35 billion in 2024-25. The government has said it does not have to come up with the full amount and can use contingency funds to cover some of the costs. Still, departments will still be spending £21.9 billion more than the total set by the Treasury in Hunt’s March 2024 Budget. Reeves has announced £5.5 billion in spending cuts, including means-testing winter fuel payments for pensioners, reducing the figure to £16.4 billion.
What does Reeves say?
The Chancellor of the Exchequer said during the election campaign that he would inherit the biggest mess since the Second World War, but said he was still shocked by the state of the country’s finances. Reeves says the previous government promised spending but didn’t allocate the money to pay for it. She says Hunt covered up what was really going on. “He did it knowingly and deliberately. He lied and they lied during the election campaign about the state of the national finances,” she said.
What does Hunt say?
Hunt says Reeves invented the £21.9 billion “black hole” story to hide the fact that he always intended to pass tax increases in the Budget. Hunt says Reeves knew the state of the public finances because, as Shadow Chancellor, he had privileged access to the civil service before the election. The finances are not as bad as Reeves claims, and the extra £9.4 billion in spending pressures is the result of the Chancellor’s own decision to meet the full recommendations of the Public Sector Pay Review Body.
So who is right?
As is often the case, the picture is not entirely clear. Reeves cannot claim to be totally ignorant of spending pressures, and during the election campaign he himself said that the existence of the independent Office for Budget Responsibility meant he didn’t need to win an election to know the state of the finances. But the Treasury’s argument that the situation is even worse than expected was strengthened when the Director for Budget Responsibility, Richard Hughes, said on Monday: Launch an investigation into how department expenditure totals for 2024-25 were compiledThe OBR only became aware of the extra spending pressures last week. Paul Johnson, director of the Institute for Fiscal Studies, said Reeves’ figures were novel in that they had not been published before, and he was surprised that the £6 billion in housing for asylum seekers had not been budgeted for. Still, Johnson said it was clear Reeves was always facing difficult decisions.
Isn’t this just a case of shifting responsibility?
To a large extent, yes. Both Hunt and Reeves want to control the narrative, knowing the impression they are likely to leave with voters. Hunt’s message is that the economy and finances are on the mend under his leadership, that extra money for the NHS is linked to productivity gains and that the £10 billion cuts to the National Health Service are affordable. Reeves said: Unfunded promises Changes will be made that the OBR was not aware of, and the result will be that already tough choices will become even tougher.
How difficult are those choices?
The Treasury may be able to cut billions of pounds from departmental spending over the coming months, but the remainder of the £16.4 billion will have to be addressed in the Budget on 30 October. Public spending figures for the next financial year look incredibly tight, with the ongoing costs of this year’s public sector pay deal. Taxes will certainly rise. The only question is which taxes will rise.
