Rachel Reeves is to announce the steps the new Labour government will take to plug a multi-billion “black hole” in the UK’s finances later on Monday.
The chancellor is expected to accuse the previous Conservative government of “covering up” shortfalls in departmental budgets, but the Tories say she is setting up a narrative that will lead to tax rises.
In a speech to parliament at about 3.30pm, Reeves will announce the date of her first budget in the autumn and lay out the spending inheritance left by the last government – early reports have put the figure at £20bn.
In its manifesto before the general election, Labour pledged not to raise certain taxes, so where will she find the money to pay for this shortfall?
Are Labour going to put up taxes?
The new government has vowed to keep its pre-election pledge to not raise taxes on working people, despite the Conservatives insisting the new government will be left with no other choice.
However, Labour has been repeating its message that the country’s finances they have inherited are in a more perilous state than they expected. This has led to fears that taxes will be raised, although Reeves has ruled out increases to income tax, VAT, national insurance and corporation tax.
But the government has not ruled out raising capital gains tax and inheritance tax, while pensions relief could also become less generous.
On Monday morning, cabinet office minister Pat McFadden said there will be no tax announcements in Reeves’s speech but that pledges on invoice tax, national insurance and VAT “still hold”.
What did Labour say in its manifesto?
Four months before the election, the Institute for Fiscal Studies (IFS) think thank accused Reeves and the now shadow chancellor Jeremy Hunt of being joined in a “conspiracy of silence” about the tough tax and spending choices facing the UK.
Paul Johnson, director of the IFS, said at the time he was “sceptical that Rachel Reeves will preside over deep cuts in public service spending”.
Less than two weeks before the election, after Labour hinted the finances could be worse than expected after they “open the books”, Johnson posted on X, formerly Twitter: “The books are wide open, fully transparent. That really won’t wash.”
He had previously said of Labour’s pledges: “This was not a manifesto for those looking for big numbers. The public service spending increases promised in the ‘costings’ table are tiny, going on trivial. The tax rises, beyond the inevitable reduced tax avoidance, even more trivial.”
Helen Miller, deputy director of the IFS, also hinted at future problems facing Labour: “While choosing not to increase tax overall is a legitimate political choice, pledges not to increase a wide range of specific taxes are problematic: they restrict a government’s ability to respond to changing circumstances and can seriously hamper tax reform.”
How will Labour find £20bn?
Reeves will announce on Monday that a new Office of Value for Money, a manifesto pledge, will begin work immediately to recommend areas where the government can save cash in the current financial year.
This office will also aim to prevent spending on projects that are poor value for money before they begin.
This could mean the axe for ex-prime minister Boris Johnson’s plan to build 40 new hospitals, as well as scrapping the £1.7bn initiative to build a tunnel under Stonehenge on the A303 and the Euston station section of the HS2 high speed rail project.
The Sunday Times reported that the Tories’ £500m Restoring Your Railway Fund and the A27 Arundel bypass in West Sussex are also facing the chop.
Reeves will also announce plans to make government departments more efficient, including the end of non-essential spending on consultants.
