The Conservative comeback to the accusations of cover-ups and deception is that the £22bn black hole is, in part at least, coming from discretionary choices that Labour are making. Part of the overspends that are identified in this black hole are from pay settlements that Labour is choosing to accept in full – that is, a political decision. It means millions of public sector workers are expected to receive above-inflation pay rises.
The chancellor also confirmed that the BMA and the government have agreed to a new pay deal for junior doctors which could lead to a 22.3% pay rise over two years – if the union members accept the deal it will end the long running industrial action that led to the cancellation of hundreds of thousands of appointments.
How much of this is political theatre?
Though Reeves framed the announcement as purely based on the economic reality that the government finds itself in, Richard says Reeves’ speech was “hugely political”.
“It’s exactly what George Osborne did in 2010, when he came in and blamed Labour for the mess that the Conservatives had inherited. It’s a classic tactic at the start of a new parliamentary term”.
But back in 2010, Osborne had the infamous “there’s no money left” note from Liam Byrne which was repeatedly weaponised by the Conservatives over the years. “This is Reeves’ attempt to construct a ‘note left in the Treasury’ moment, that shows everyone that everything is far, far worse than anybody anticipated,” Richard adds. Reeves will likely use the political ammo from the audit to pave the way for certain tax rises in the autumn and further cuts.
Reeves’ speech could have in some ways “easily been delivered by a Conservative Chancellor,” Richard says (indeed, she repeated the mantra “if we cannot afford it, we cannot do it” throughout).
The cuts
Reeves said the government’s overspend on the asylum system was £6.4bn, with another £1.6bn overspend on rail that the Office for Budget Responsibility (OBR) was not aware of.
In the name of “economic stability”, Reeves has cut funding for hospital and road projects and scrapped the social care cap. Winter fuel payments – which were previously given to all pensioners – will now only go to those on lower incomes who receive pension credit or other means-tested benefits.
All departments are expected to find £3.1bn in “efficiency savings”, with a particular focus on cutting all non-essential spending on consultants. Labour have also said that they will introduce an Office of Value for Money (OVM), as well as multi-year spending reviews which will give government departments stability to plan ahead.
Reeves has said that a number of projects will be put under review or cut altogether, like Rishi Sunak’s flagship new educational qualification, the Advanced British Standard, and the previous government’s transport commitments. The Sunak government’s New Hospital Programme and “40 hospitals by 2030” commitment are also under review, with Reeves adding that the Tories had got the public’s hopes up with these projects without accounting for the cost. The Rwanda scheme is officially gone and asylum claims will be processed again, which Reeves says will save £800m this year and £1.4bn next year. The chancellor said many of these projects were unfunded and “delivery was wildly off track”.
These measures bring the projected overspend down to £16.4bn, which Reeves has implied she intends to address come October.
What’s to come
The chancellor is likely laying the ground for a tight budget in the autumn, which will include some tax increases, although she has continued to promise to not raise rates of income tax, national insurance and VAT.
Richard says that while Reeves appears to be adopting similar language to Tory predecessors, the country is not necessarily heading back to an age of austerity. The pay rises to public sector workers suggests that the situation is more nuanced than that, “but there are definitely elements that those on the left of politics will be hugely disappointed by and that will be criticised as being duplicitous,” he says.
Having decimated the Conservatives during the election, used their language of fiscal irresponsibility against them, Labour wants to be viewed as outdoing the Tories at their own game. But economists and other experts will probably also argue that infrastructure and welfare are the types of areas that are required to lay the groundwork for stronger economic growth for the future, “so, to a degree, cutting them undermines Labour’s own growth project,” Richard says.
