Image source, Getty Images
Rachel Reeves will make a statement in Parliament on Monday promising to be “honest” about the scale of the financial challenge facing a new Labour government.
It is not about new policies or new borrowing projections.
Instead, Treasury officials have been scrutinizing department plans to uncover unexpected costs and implicit cuts to public services under spending plans inherited from the previous administration.
Publishing a full audit of public spending pressures would be risky. It would be a major test for the new Chancellor.
When she stands up and tells MPs she has discovered billions of pounds of unexpected spending pressures, many will be left wondering.
Were these pressures really so unexpected that they spared the previous administration’s files from being shredded?
The new finance minister’s first job will be to win the trust of investors – and voters – because everything he or she achieves economically will be made easier by having that trust.
But the past few years have proven that trust is hard to earn and much easier to lose.
If we lose that, even simple policies become difficult.
Reeves is committed to ensuring that any future government does not sideline the assessment of Britain’s independent forecasters’ economic plans, as former chancellor Liz Truss did in her short-lived mini-budget.
Indeed, she has introduced legislation that gives the Office for Budget Responsibility (OBR) the power to make judgements on any major tax or spending announcement.
The OBR is not involved in Monday’s process, but we may hear from them after the event.
Previous reports have suggested official forecasts regularly miscalculated borrowing levels because they underestimated government sector spending.
Last year, the company specifically pointed to a legal requirement that it must condition its forecasts on the “expressed policy of the government”, even if they are deemed unrealistic.
For example, in March the OBR said real spending per head in the UK was likely to be 8% lower in 2027 than initially indicated in the last Spending Review, which detailed government departments’ public spending plans.
The question on Monday is whether Reeves has detailed evidence of what this means in practice.
Home Secretary Yvette Cooper has already Conservative Rwanda plan to cost £700 millionIn areas not protected from spending cuts, the Executive would have drawn up scenarios about the impact of actual cuts on councils, including prisons, courts, universities, further education providers and adult and children’s social care.
The new government seems to be suggesting that the huge spending required for basic public services means they have little choice: local authorities, for example, spend the majority of their budgets on services that they are statutorily required to provide.
It is not surprising that spending in certain areas has been severely squeezed.
But is a public sector pay settlement recommendation that is around 3% higher than current spending plans really so surprising? In any case, it is the government’s choice whether to accept and fund it.
In nearly every Congress (except the last one), new administrations have chosen to raise taxes in their first budgets, and Monday’s plan appears to be part of a process leading up to tax hikes in the fall.
The government has already ruled out raising taxes, which account for 75 percent of its revenue.
But the new chancellor will need to find conclusive evidence from his staff in departmental documents or explain why all this was not made clear to voters before the election.
