Britain is ‘broke and broken’, the new government has said, claiming the state of public finances is even worse than feared ahead of a speech by the new Chancellor of the Exchequer.
Rachel Reeves is due to make her first big statement to the House of Commons at around 3.30pm today, when she will set out how she plans to deal with an apparent £20 billion ‘black hole’ in funding.
Tax rises are expected in the autumn, but not today (Labour would like a few months basking in the honeymoon period after all).
What is anticipated, however, is for cuts on major projects to be announced in a bid to save money, as well as pay rises for millions of public sector workers.
The most high profile scheme on the chopping board could be the £1.7 billion planned tunnel under Stonehenge, intended to ease traffic pressure on the A303.
This had been controversial to begin with, as protesters said there should not be major roadworks at such an important historic site.
Many will therefore welcome the move, though perhaps not those who regular drive past Salisbury.
The £500 million Restoring Your Railway Fund and the A27 Arundel bypass are also set to be scrapped, The Sunday Times reported.
There is also expected to be suspension of Boris Johnson’s 40 hospital building projects, and restriction of spending on non-essential consultants.
The government is also expected to try to sell off ‘surplus’ public land and buildings, including sites owned by the NHS, Ministry of Defence, and National Rail, to raise cash – continuing a move introduced by the Conservatives.
Reeves will also launch the Office of Value for Money, a new government agency aimed at reducing waste.
On the other side of the coin, she is expected to announce increased spending on public sector pay.
Teachers and 1.3 million NHS workers, including nurses, are among those hoping for a 5.5% pay rise, as the Chancellor is expected to approve above-inflation increases in response to the recommendations of independent pay review bodies.
This could cost about £3.5 billion more than had been budgeted for, and the figure could rise to about £10 billion if other pay review bodies give similar advice on workforces such as police and prisons officers and doctors and dentists, according to the Institute for Fiscal Studies (IFS).
As this cost has not been fully budgeted for in current plans, the cash would have to be raised through existing fiscal headroom, tweaking fiscal rules or tax increases.
Rachel Reeves is reported to be ready to announce an improved pay deal for junior doctors amounting to around 20% in total, after a protracted dispute running since March 2023.
The Times reported that the British Medical Association (BMA) has recommended the offer to members, which is understood to include a backdated pay rise of 4.05% for 2023/24, on top of an existing increase of between 8.8% and 10.3%.
A further pay rise of 6% for 2024/25 will also be topped up with a consolidated £1,000 payment.
Downing Street did not confirm or deny the reports.
If the deal has been reached with the British Medical Association, it will now be put to junior doctors for a vote.
It is possible but more likely they will come in the autumn budget, with capital gains, pensions relief and inheritance tax all potential targets to raise funds.
Cabinet Office minister Pat McFadden told Sky News that Labour’s election promise not to raise income tax, national insurance or VAT would ‘still hold’.
The Chancellor’s speech overall might bring to mind George Osborne’s ‘tough but fair’ speech introducing austerity as Chancellor in 2010, when he blamed Labour for ‘living beyond its means’ with record debt.
Fourteen years of Tory government later, it’s much the same story as the new government has come in accusing its predecessor of fiscal irresponsibility.
‘The previous government refused to take the difficult decisions,’ she is expected to say. ‘They covered up the true state of the public finances. And then they ran away. I will never do that.’
Some cast doubt on how surprised she really could have been after taking office, Shadow transport secretary Helen Whately said the Chancellor ‘would have known about the state of the public finances’ while serving in opposition because of the Office for Budget Responsibility.
Ms Whately added: ‘Actually while Labour is going out there and trying to tell everybody that it is all so difficult for them, this is just them setting a narrative for tax rises that they want to bring in later on.’
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