Chancellor Reeves Unveils Plans to Address Alleged £22bn Fiscal Black Hole Amid Accusations of Conservative Mismanagement

The chancellor's significant budget shortfall claims and her strategy moving forward

In her address to Members of Parliament, the chancellor cited a £21.9 billion deficit, a figure her predecessor, Jeremy Hunt, labeled as "imaginary." This has prompted a reevaluation of the Labour Party's fiscal commitments, including tax and expenditure plans.

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Monday, July 29, 2024 6:40

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Rachel Reeves has charged the former office holder with concealing a "£22bn funding shortfall" for the ongoing fiscal year, as she declared a number of "difficult choices" to offset this.

The newly appointed chancellor informed members of Parliament that her inquiry into the fiscal strategies left by the previous administration revealed a Conservative effort to conceal facts, prioritizing party interests over national welfare.

She claimed, citing research from Treasury staff, that there was an expected budget overrun of £22 billion for the year. Additionally, she noted that this data was not shared with the independent Office for Budget Responsibility (OBR) before the budget announcement in March.

Latest in Politics: Chancellor faces backlash during announcement of significant budget reductions, admits frustration too.

In this section, we outline the primary allegations and Ms. Reeves' strategies for addressing them.

The "dark void"

The chancellor stated that the government's emergency fund, initially totaling slightly more than £9 billion for unexpected expenses, had been exceeded by more than triple its amount.

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She claimed that the Conservative Party frequently made financial pledges without adequate reserves, and intentionally withheld this information from the Office for Budget Responsibility.

She noted that out of the £22 billion total for this year, £6.4 billion was allocated to the asylum system, which includes funds for the contentious Rwanda program.

The funding shortfall also encompassed £9.5 billion designated for public sector salary increases. More details on this will follow.

Her predecessor, Jeremy Hunt, labeled the "£22bn black hole" assertion as "fictitious."

Immediate steps taken, with significantly more to follow

Ms. Reeves stated that the government intends to recover £5.5 billion from a £22 billion funding shortfall this year, and aims for an additional £8 billion the following year. She also noted that government departments are required to identify a total of at least £3 billion in savings.

She announced that a comprehensive budget would be presented on October 30.

Increases in income tax, national insurance, and VAT were dismissed, consistent with the commitments made in the Labour Party's election manifesto, as was the implementation of a wealth tax.

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What is currently being reduced?

Starting this winter, winter fuel payments will be limited to recipients of pension credits or other benefits assessed by means testing.

The Advanced British Standard qualification, a key initiative from former Prime Minister Rishi Sunak, is set to be discontinued, according to Ms. Reeves, who pointed out that Mr. Sunak "failed to allocate any funding for it."

She stated that the proposed changes to how adults are charged for social care have been scrapped, resulting in savings of over £1 billion by the end of next year.

The government will discontinue the Restoring our Railways initiative due to a lack of allocated funds.

Ms. Reeves announced that the projects to tunnel the A303 at Stonehenge and upgrade the A27 road will not proceed.

She additionally stated that a public stock offering aimed at concluding the government's ownership in NatWest would not proceed, because such a sale would require significant markdowns, thus resulting in poor value for taxpayer money.

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Fresh financial pledges

Amid financial constraints highlighted by the chancellor, she affirmed her commitment to fully implementing the suggestions made by the public sector pay committees.

Earlier in the day, it was reported that junior doctors in England had been proposed a 22.3% salary increase spread over two years.

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