Rachel Reeves announces cuts and hints at tax rises to plug 'unforgivable' £22 billion black hole in public finances
Rachel Reeves has vowed to be “honest” as she hinted at tax rises to plug an “unforgivable” £22 billion black hole in the public finances.
The Chancellor was forced to defend limiting winter fuel payments to benefit recipients while hiking junior doctors’ pay, as she claimed she was making the “difficult decisions”. The defence came as she accused her predecessor Jeremy Hunt and the previous government of leaving £21.9bn of unfunded commitments that it had “covered up from the country”.
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Hide AdMaking a statement in the Commons on Monday, Ms Reeves set out a plan to make £5.5bn in savings. She confirmed the rest of the gap would be addressed at the UK Budget to be delivered on October 30.


One of the actions set out by the Chancellor on Monday involved introducing a means test for the winter fuel payment. The policy is expected to reduce the number of pensioners in receipt of the payment by ten million, from 11.4 million to 1.5 million, saving some £1.4 billion this financial year.
The winter fuel payment will be devolved to Holyrood this year, and First Minister John Swinney said the Chancellor’s announcement of cuts to cover the UK government overspend will lead to “tough decisions” on spending in Scotland.
The SNP leader said the “appalling picture” of the public finances will “inevitably” mean a reduction in the amount of money made available to his government.
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Hide AdMr Hunt claimed around half of the “black hole” in spending was due to the Chancellor deciding to give above-inflation pay rises to millions of public sector workers, while the SNP claimed the cuts were a “political choice” and accused Labour of being “dishonest” with voters.
But Ms Reeves said the pressures had not been revealed to the public by the previous government. She told MPs: “Before the election, I said that we would face the worst inheritance since the Second World War. Taxes at a 70-year high, debt through the roof, an economy only just coming out of recession.
“I knew all of these things. I was honest about them during the campaign.”
The UK government is also scrapping the Dilnot reforms to social care, which would have introduced a more generous means test and raised capital limits for individuals’ contributions to their own care.
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Hide AdThe previous government announced the reforms in 2021, but delayed introducing them and, according to the Treasury, did not provide the required funding creating a pressure of around £1.1bn over the next two years.
Mr Swinney said: “The Chancellor has painted an appalling picture of the financial future facing the UK.
“By echoing the previous government’s fiscal rules, they are trapped into delivering massive spending cuts.
“We warned this was the reality and today has seen that truth validated.
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Hide Ad“Now, if they do not change course, the reality of the UK’s finances will inevitably affect the funding available to us here in Scotland.
“Their decisions today mean tough decisions ahead for Scotland.
“What is particularly worrying is that the Chancellor announced she is not fully funding the public sector pay deals she has accepted.
“Instead, cuts are being demanded across most of Whitehall.
“That means that we will not receive full Barnett consequentials from these pay deals.
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Hide Ad“The Scottish Government will prioritise action to tackle child poverty, grasp the opportunities of net zero and grow the economy by investing in public services and infrastructure.
“And, while we will work with the UK where we can, we will continue to argue they must drop the damaging cuts and set new spending rules that support investment.”
A Scottish Government spokesperson said: “Responsibility for Winter Fuel Payment will be transferred to the Scottish Government this winter (2024-25), with these payments funded from within the 2024-25 Scottish Budget. The full implications of the Chancellor’s statement are being examined, however it’s understood means-testing Winter Fuel Payments will reduce the funding given to the Scottish Government associated with our planned replacement Pension Age Winter Heating Payment.
“That such a change can be made without any consultation or discussion with the Scottish Government Ministers is deeply disappointing given both governments committed to resetting the relationship between them.
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Hide Ad“The Scottish Government is committed to tackling fuel poverty and has consistently supported vulnerable households through a range of actions.
“We are keen to develop an understanding of the UK Government’s wider plans to protect energy customers in greatest need, such as a social energy tariff.”
The Scottish Conservatives said the Chancellor’s decision to restrict winter fuel payments would be “a bitter blow” to pensioners up and down the country.
Other savings included ending the Rwanda migration scheme, saving £800 million this year, as well as cancelling the Stonehenge Tunnel, A27 schemes and plans to restore some previously closed railway lines, saving £785m next year.
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Hide AdTo save £600m this year, the government is also ending non-essential spending by departments on consultancy services and communications, and saving £185m next year by abandoning Rishi Sunak’s “Advanced British Standard” in education.
There will also be a review of other transport infrastructure projects and the New Hospitals Programme, announced by Boris Johnson with the aim of building 40 “new” hospitals. But departments will still be expected to find a total of £3.2bn in savings to partially pay for above-inflation pay awards for public sector staff.
Ms Reeves statement also appeared to hint at tax rises in October’s budget. She said: “I have to tell the House that the Budget will involve taking difficult decisions to meet our fiscal rules across spending, welfare and tax.”
She said it would be “a budget to fix the foundations of our economy and it will be a budget built on the principles that this new government was elected on”.
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Hide AdMs Reeves also announced the government would accept the recommendations of pay review bodies to grant millions of public sector workers pay rises of between 5 per cent and 6 per cent. This means the government needs to find £9.4bn more than originally budgeted to cover the awards – one of the main pressures identified by an audit of public spending launched by Labour when it came to power.
The Treasury stressed failing to accept the pay review recommendations would incur additional costs as a result of continued industrial action, which it said it had cost the NHS £1.7bn last year in direct costs alone.
Other significant pressures identified by the audit included £6.4bn on hotel accommodation for asylum seekers, £2.6bn on unfunded policy announcements since 2021 including the Advanced British Standard and the Network North scheme, and £2.2bn needed to cover pay awards from previous years.
Ms Reeves said these pressures had not been revealed to the public by the previous government.
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Hide AdIn a sign the crisis is not just political, Richard Hughes, head of the Office for Budget Responsibility (OBR), revealed he only became aware of the pressures “at a meeting with the Treasury last week”.
Announcing a review of the preparation of the OBR’s forecasts in March, he said the findings from the Treasury audit would represent “one of the largest year-ahead overspends” outside of the pandemic.
The Institute for Fiscal Studies (IFS) agreed some of the details set out by Ms Reeves were “shocking”, but suggested not all the spending pressures were a surprise.
IFS director Paul Johnson said: “Rachel Reeves is within her rights to feel somewhat aggrieved. It was always clear and obvious that the spending plans she inherited were incompatible with Labour’s ambitions for public services, and that more cash would be required eventually.
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Hide Ad“But the extent of the in-year funding pressures does genuinely appear to be greater than could be discerned from the outside, which only adds to the scale of the problem. But not all of what we heard should have come as a terrible surprise.”
The winter fuel payment announcement prompted a significant backlash, with Martin Lewis, founder of MoneySavingExpert, warning the targeting of the financial support was “too narrow with the winter we have coming”.
He said: “The energy price cap is likely to rise 10 per cent this October and stay high across the winter, leaving most energy bills nearly double those pre-crisis, at levels unaffordable for millions. Many pensioners eke out the £100 to £300 winter fuel payments to allow them to keep some heating on through the cold months.
“While there’s an argument for ending its universality due to tight national finances, it’s being squeezed to too narrow a group – just those on benefits and pension credit. Yet again, those just above the thresholds will be hardest hit.”
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Hide AdMr Hunt said that figure meant around half of what he claimed was a “fictitious black hole” came from discretionary public sector pay awards, as he declared Ms Reeves had “caved into the unions”.
He said: “Today’s exercise is not economic, it is political. She wants to blame the last Conservative government for tax rises and project cancellations she’s been planning all along.”
SNP Westminster Leader Stephen Flynn claimed the Labour party had “misled the public and has broken its promise to voters”.
He said: "Throughout the election, the SNP repeatedly warned the Labour Party's damaging decision to copy Tory fiscal rules and spending plans would mean around £18bn of cuts or tax rises. Labour flatly denied this and promised there would be no cuts – but now they have been forced to admit it was true and the cuts will be even deeper than expected.
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Hide Ad"The cuts announced today are a political choice that will damage public services and economic growth – and, more worryingly, it's now clear the Labour government will continue to cut and squeeze the budgets of public services, at a time when they desperately need investment.”
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