Labour Chancellor blames the previous conservative government for the budget deficit; announces upcoming spending review and autumn budget

Rachel Reeves, the Chancellor, is set to announce a significant £20bn deficit in the UK’s public finances on Monday, potentially leading to tax increases in the upcoming autumn budget. Labour attributes this financial shortfall to what they describe as a “shocking inheritance” from the previous Conservative administration, accusing the former chancellor of neglecting fiscal responsibilities while advocating for tax cuts.

The deficit, initially estimated at £20bn, may vary as ongoing audits assess each department’s spending commitments. Key areas of concern include the asylum system, welfare, defence, and prisons, all of which have contributed to the budgetary challenges.

Reeves plans to outline the findings of her Treasury audit, along with the schedule for a comprehensive spending review and the next budget, slated for October. Experts predict that she will need to introduce new tax measures, potentially targeting capital gains, inheritance taxes, and reducing tax reliefs. Reeves has already ruled out changes to major revenue streams such as income tax, VAT, national insurance, and corporation tax.

Prime Minister Keir Starmer recently highlighted the severity of the situation, stating that public finances are “in the worst place since World War II.” A Labour spokesperson emphasized that the British public will soon see the full extent of the fiscal mismanagement by the previous government, which they claim spent recklessly, leaving Labour with the task of rebuilding the economy.

Economists suggest that Reeves will likely present a grim assessment of the current economic state, criticizing the prior administration’s policies. The review is expected to deem current spending plans unsustainable, potentially necessitating significant cuts to public services, a concern that had been raised by economists prior to the election.

During her presentation in the Commons, Reeves will also discuss the government’s stance on public sector pay, which currently exceeds existing spending plans by about 3%. It is anticipated that she will accept the pay recommendations in full, signalling a shift in government approach and aiming to prevent further industrial action.

Reeves will point to specific areas where the former government failed to act, leading to the current fiscal challenges. This includes significant financial commitments like compensation for victims of the infected blood scandal and Horizon Post Office failures. Labour’s Angela Rayner is expected to follow Reeves with proposals to reform national planning rules, including new local authority targets and changes to greenbelt development regulations, with consultations planned before the autumn.

Bloomberg

UK Chancellor Rachel Reeves may announce tax increases of up to £25 billion in the forthcoming budget, according to Michael Saunders, a former Bank of England (BOE) policymaker and current senior economic adviser at Oxford Economics. This move is anticipated as part of a broader effort to address the fiscal challenges inherited from the previous Conservative government. Reeves, who took office after Labour’s July 4 victory, aims to be transparent about the “difficult decisions” required to restore fiscal stability.

The fiscal review is expected to reveal significant underfunding and unsustainable spending in various sectors, prompting the need for corrective measures. Saunders suggests that Reeves will highlight these issues to justify necessary fiscal changes, distancing her administration from the past management’s shortcomings.

To mitigate potential economic disruption from the proposed tax hikes, it is expected that the BOE may implement sharper interest rate cuts to support growth. This dual approach seeks to balance fiscal responsibility with economic recovery.

The anticipated tax increases and budget adjustments will have political, social, racial, and gender implications. Politically, the move could intensify debates, with Labour framing the fiscal challenges as a legacy of the previous government. Socially, the changes may affect disposable incomes and consumer spending, with particular attention needed to avoid exacerbating economic inequalities across racial and gender lines. Economically, the measures aim to stabilize public finances, though the impact on growth and investment remains a concern. The upcoming budget will be crucial in defining Labour’s economic strategy and addressing the UK’s financial challenges.

Financial Times

UK Chancellor Rachel Reeves is expected to reveal a £20 billion shortfall in public finances, highlighting what Labour describes as a financial mismanagement by the previous Conservative government. The announcement, scheduled for Monday, will present an audit showing significant funding gaps in critical areas such as asylum and public sector pay. This disclosure is likely to pave the way for tax increases in the upcoming budget to address the fiscal deficit.

Labour sources claim that this audit will “lift the lid” on the extent of the financial issues inherited from the Conservatives, characterizing the situation as a “failure” to properly manage government finances. The exact figure of the shortfall could still change as further details are assessed.

This financial revelation coincides with other major news, including potential shifts in international defense collaboration. Roberto Cingolani, CEO of Leonardo, indicated that Saudi Arabia might join the Global Combat Air Programme if the UK reduces its participation. Additionally, in Spain, Banco Sabadell’s leadership has warned that regulatory requirements could complicate a hostile takeover bid by BBVA.

On the international front, Israeli Prime Minister Benjamin Netanyahu recently met with U.S. President Joe Biden, discussing issues such as a potential Gaza ceasefire. Meanwhile, the Liberal Democrats in the UK are advocating for increased parliamentary rights following their electoral gains, and the European Commission has paused its enforcement actions against member states over fishing regulations, reflecting broader challenges in regulatory enforcement.

In Russia, a booming defence industry has led to rising salaries, triggering a consumer spending boom as businesses compete for a limited labour force. This economic shift highlights the ongoing socio-economic changes in the country amidst labour shortages.

The Telegraph

UK Chancellor Rachel Reeves is set to disclose a £19 billion shortfall in public finances, attributing the gap to pressures on the NHS, prisons, and schools. This revelation, expected on Monday, is part of an assessment of the financial situation left by the previous Conservative government. The shortfall, which includes funds for inflation-busting public sector wage increases, could lead to tax hikes in the upcoming autumn budget.

Labour leader Sir Keir Starmer has ruled out a return to austerity, despite the financial challenges. The audit’s findings are still being finalized, with possibilities for managing the deficit through efficiency savings or delaying projects. The Treasury will provide a comprehensive report to Parliament, detailing the financial state and setting the stage for Reeves’ budget.

Experts anticipate that tax increases could reach up to £25 billion to address the deficit, with potential measures including changes to pensions and inheritance tax reliefs. The Office for Budget Responsibility’s economic assessment will influence the final budget decisions. This situation underscores the significant financial pressures facing the UK government, as it balances fiscal responsibility with public sector demands.