The new Labour government is set to unveil an audit of public spending on Monday, revealing a “black hole” in government finances worth tens of billions of pounds
Chancellor Rachel Reeves will present the findings to Parliament, promising “honesty” about the scale of the challenge ahead.
Reeves vows to “fix the mess we inherited” but refuses to confirm speculation that the gap in public finances exceeds £20bn per year. The Conservatives have dismissed Labour’s claims as “peddling nonsense” and accused them of laying the groundwork for tax rises.
Labour argues that the previous government left crucial public services unfunded, including public pay and prisons. A Labour source claims that the Conservatives spent recklessly, knowing someone else would have to foot the bill.
Conservative shadow chancellor Jeremy Hunt denies Labour’s claims, calling them “nothing but a fabrication.” He accuses the government of preparing the public for tax increases.
On Monday, Reeves will also address public sector pay recommendations, which are 3% higher than current spending plans. She is likely to accept above-inflation pay settlements for public sector workers to address recruitment and retention challenges.
The government’s “black hole” arises from the need to spend extra money to maintain public services. However, the size of the gap depends on the government’s spending decisions and borrowing rules.
Experts say it’s difficult to determine the exact size of the gap, and Labour has pledged not to raise taxes on working people. The Treasury will likely spend the summer seeking extra savings or taxation revenue to fill the “black hole.” A more optimistic economic outlook from the Office for Budget Responsibility could improve the trade-offs between spending and tax rises.
