Rachel Reeves has scrapped the social care cap and curbed winter fuel payments, as well as announcing big cuts to hospital and road projects, as she seeks to plug what she called a £22bn hole in public spending that was “covered up” by the Conservative government.
In a statement to the Commons that mixed detailed economics and partisan politics, the chancellor justified the cuts with the repeated mantra: “If we cannot afford it, we cannot do it.”
Announcing a date for the autumn budget of 30 October, Reeves warned it would “involve taking difficult decisions to meet our fiscal rules across spending, welfare and tax”, paving the way for likely tax increases.
In an effort to save £1bn a year, she said a plan to cap care charges for older people would be scrapped, prompting shouts from the Tory benches. “I can understand why members are angry,” Reeves responded. “I am angry, too. The previous government let people down.”
The previously universal winter fuel payments for pensioners would now only go to those on lower incomes who received pension credit, she said.
“Let me be clear, this is not a decision I wanted to make, nor is it the one that I expected to make, but these are the necessary and urgent decisions that I must make.”
She said there would also be a review of the previous government’s plan for 40 new hospitals, which would be replaced with a “thorough, realistic and costed timetable for delivery”.
Reeves told MPs that while she knew in advance that Labour, if elected, would inherit a difficult fiscal position, there were a number of areas where nasty surprises had emerged.
“Upon my arrival at the Treasury three weeks ago, it became clear that there were things that I did not know, things that the party opposite covered up; covered up from the opposition, covered up from this house, covered up from the country,” she said.
A number of specific budgets were not “even close” to what was needed, leaving a “£22bn hole in the public finances now – not in the future, now – £22bn of spending this year that was covered up by the party opposite”.
This included “very clear instances of specific budgets’ overspend that the Office for Budget Responsibility (OBR) was not aware of”, and a £9bn contingency fund already spent three times over.
In a letter released after the statement, the head of the OBR announced a review to “assess the adequacy of the information and assurances provided to the OBR” by the then Conservative-run Treasury ahead of the last budget, in March.
Reeves said the overspend on asylum in this financial year was £6.4bn, with a £1.6bn overspend on rail, and no account taken in spending plans of higher-than-target inflation or public sector pay awards above 2%.
The government would accept the recommendations of public sector pay review bodies, she said. It had agreed a 22.3% pay award over two years for junior doctors, costing an additional £9bn this year.
Responding for the Conservatives, Jeremy Hunt, the shadow chancellor, said Reeves had full access to government accounts and was trying to con people into believing that a fiscal black hole “has magically emerged”.
“She wants to blame the last Conservative government for tax rises and project cancellations she’s been planning all along,” he said.
While Hunt quoted Paul Johnson, the director of the Institute for Fiscal Studies (IFS) thinktank, as saying the situation was plain to anyone, Johnson himself responded to Reeves’s statement by arguing that she had a point – at least in part.
Johnson tweeted: “1 Last govt left public finances in bad state; 2 it does appear that funding for eg asylum was not provided but 3 c. half of spending ‘hole’ is public pay over which govt made a choice and where pressures were known; and 4 overall challenge for spending was known and remains.”
In terms of covering the gap, Reeves said government departments were expected to find £3bn of savings, with a cutback on consultants, and communications and back-office staff.
Citing £1bn of unfunded transport projects, she said these would undergo a “thorough review”, but that a tunnel for the A303 under Stonehenge and a project on the A27 would be scrapped.
Other savings would come from scrapping the planned Advanced British Standard qualification, processing more asylum claims, and not selling the government’s shares in Natwest to the public at a discount.
