2024-07-27 23:59:08
Rachel Reeves will make a statement to parliament on Monday promising to be “honest” about the scale of the financial challenges facing the new Labour government.
This expenditure audit This was an unusual exercise, one that had never happened before.
This is not about new policies or fresh borrowing forecasts. Rather, Treasury officials have been digging into departmental plans to uncover some of the unexpected costs and implied cuts to public services that were laid out under the previous government’s spending plans.
Publishing a full audit of pressures on public spending is risky. It would be a major test for the new chancellor.
When she stood up and told MPs she had uncovered billions of pounds of unexpected spending pressures, many people had questions.
Are these pressures truly unexpected? Are they saved from the previous administration’s file shredder?
The first task for a new chancellor is to win the trust of investors and voters. Everything the chancellor achieves with the economy depends on that trust.
But the experience of the past few years has shown that credibility is hard to gain and easy to lose.
Loss of credibility makes even simple policies difficult to implement.
Reeves is fighting to stop future governments excluding Britain’s independent forecasters from assessing their economic plans, as former Prime Minister Liz Truss did with her short-lived mini-budget.
In fact, she is legislating to give the Office for Budget Responsibility (OBR) the power to make judgements on any major tax or spending announcements.
The OBR was not involved in Monday’s proceedings, but we may hear from them after the event.
In past reports, the central bank has suggested it often misstated borrowing in official forecasts by underestimating government sector spending.
Last year, it noted that the law required its forecasts to be based on “established government policies” even if those policies were deemed unrealistic.
In March, for example, the Office for Budget Responsibility said that real spending per person in the UK could be 8% lower by 2027 than initially proposed in the last spending review, which detailed public spending plans for government departments.
The question Monday was whether Reeves had detailed evidence of what that meant in practice.
Home Secretary Yvette Cooper has said the now-repealed Conservative Rwanda plan to cost £700mIn areas not protected by spending cuts, the Civil Service will lay out plans for real-terms cuts to prisons, the courts, universities, further education colleges and councils, including social security for adults and children.
The new government seems to be suggesting that the huge spending required for essential public services means there is little choice. For example, local councils spend the majority of their budgets on services they are legally obliged to provide.
Not surprisingly, spending has been severely squeezed in some areas.
But is it really so surprising that the public sector pay settlement proposals are around 3% higher than current spending plans? Regardless, it remains the government’s choice whether to accept and fund them.
In almost every new government in every parliament (except the last one), taxes have been raised in their first budgets. Monday’s plan appears to be part of a process of raising taxes in the autumn.
The government has ruled out raising the tax rate, which accounts for 75 per cent of tax revenue.
But the new chancellor needs her officials to find some hard evidence in department documents or else have to explain why all this wasn’t made clearer to voters before the election.
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