Earlier this week, Rachel Reeves revealed a £22 billion bombshell in the public finances that is our inheritance from the Conservative Party. This shortfall, that the Conservatives have bequeathed to the country and left to a Labour Government to resolve, is a disgrace.
Certainly, it is sadly reflective of the economic mismanagement that we have become accustomed to over the last 14 years of Conservative government. As an economist, firstly at the Treasury and then at Resolution Foundation and Joseph Rowntree Foundation, I have frequently found myself in despair at the management of our economy over recent years. However, I must confess that even I was shocked while listening to the Chancellor speak in the chamber.
We already knew things were bad – taxes at a seventy year high, debt near 100% of GDP (the highest level since the 1960s) and many departments struggling under the weight of Conservative austerity which was never reversed. However, the full extent of the damage done to public finances by the Conservative Party, laid bare, is a bombshell like no-other. The shambolic inheritance that has been left reflects Liz Truss mini-budget levels of incompetence. For every hour that they were in power since the start of this financial year they racked up £10 million of over-spending. We owe a collective debt of gratitude to every person that voted the Conservatives out of office – things just couldn’t carry on as they were for any longer.
In short, the previous government made commitment after commitment without knowing where the money was coming from. As one example, the projected overspend on the asylum system – including the Rwanda plan that Labour has wisely scrapped – was £6.5 billion for this year alone. In total, analysis reveals a forecast spend of £21.9 billion above the departmental limits set by the Treasury in the Spring Budget 2024.
Sitting across from him in the House of Commons, you could see Jeremy Hunt knew that he’d been found out. The performative incredulity didn’t wash and couldn’t withstand the seriousness and attention to detail which Rachel Reeves and Darren Jones have brought to the Treasury.
The Conservative government knew it was overspending departmental budgets and yet chose to conceal this from the British public. After party-gate, trust in politics was at an all-time low – and yet the Conservatives have now stooped even lower. They have misled us all on our public finances and played fast and loose with the future of this country.
Furthermore, they didn’t just mislead the public – they even kept it from the OBR. In a letter to the Chancellor, the OBR said that it was only made aware of the extent of the overspend last week. Meanwhile, Paul Johnson of the IFS has said that it is ‘hard to understand’ why the Tories didn’t deal with funding pressures in the Spring Budget.
Although not of our making, it is the solemn duty of the Labour government to sort out this mess. We will do so both with sound management of our country’s finances and with integrity.
The Chancellor was right to bring forward her spending plans after only three weeks in government in order to be clear on the inheritance that has been left by the Conservatives. As she said, “I will not conceal information from the British public and I will not conceal information from financial markets”. Labour will always be honest with the public about the state of the public finances and the tough choices ahead.
In her statement, the Chancellor outlined both short-term and longer-term steps to restore effective management of our economy. In the short-term, the government has secured savings of £5.5 billion in 2024-25 and announced changes to proposed plans – this includes scrapping some of the Tories’ unfunded projects, reviewing other projects in line with affordability and stopping winter fuel payments for households not in receipt of Pension Credit. None of these decisions are easy. However, as the Chancellor said, “If we cannot afford it, we cannot do it.”
Despite the immense fiscal challenge, I am pleased that the Chancellor affirmed Labour’s commitment to the manifesto we were elected on, including our fiscal rules, the triple lock on pensions and our commitment not to raise taxes for working people.
In the longer-term, I welcome the announcement of a multi-year Spending Review to conclude in spring 2025, as well as plans to strengthen our fiscal framework and institutions to ensure that this situation can never happen again. These include introducing a fiscal lock through the Budget Responsibility Bill and committing to Spending Reviews every two years in order to set departmental expenditure limits.
The work of national renewal is only just beginning. It will not be easy. In fact, this week showed just how hard it will be. But Labour will not shirk from the challenges that we face. I look forward to using my experience as an economist to support the Chancellor’s plans to restore economic stability and growth to this country once more. In doing so, we will act with integrity restoring the trust between politicians and the public that has been so badly broken.
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