The date of the next Budget is fast approaching, accompanied by the new Chancellor’s warning about government finances.
Chancellor Rachel Reeves’ first announcement on entering 11 Downing Street was the commissioning of a ‘spending inheritance’ review from the Treasury. Her decision to do so was questioned by the opposition (Conservatives), among others, who argued that the state of public finances has been made clear in the report from the Office of Budget Responsibility (OBR) in March. However, the OBR’s grim outlook was studiously ignored during the election campaign by both main parties, prompting the Institute for Fiscal Studies to complain of “a conspiracy of silence”.
Post-election, the new ministers were told to ‘bring out your dead’ – pull together their departments’ financial problems. The result was a steady flow of dire warnings on prisons, the NHS, universities and more. This was followed by a welter of gloomy reports from the National Audit Office on the 23rd July, publication of which had been delayed by the election.
Finally, on 29th July, Rachel Reeves bundled the bad news inside her Treasury-commissioned review and broke the IF’s conspiracy of silence. In her words, “There were things that I did not know”, which in total represented a projected overspend of £22 billion in the current financial year. Two immediate actions she announced in response were to:
- Scrap the winter fuel allowance, other than for those on means-tested benefits; and
- Abandon the introduction of new capped social care funding rules in England, which had been due to start in October 2025.
Ms Reeves also revealed that her Autumn Budget would be on October 30th, later than had originally been expected. Her July statement made clear that there would be action on tax to fill the £22bn ‘black hole’, but reiterated Labour’s manifesto pledge that there would be no increases in national insurance, the basic, higher, or additional rates of income tax, or VAT. That points to capital gains tax, inheritance tax and tax reliefs as possible revenue-raising targets in the autumn.
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