Chancellor to announce cost-cutting measures to plug £20bn black hole

Chancellor Rachel Reeves will announce immediate steps to cut costs on Monday as she is expected to unveil a black hole in the accounts of around £20 billion.

She will lay out the spending inheritance left by the previous government – and announce the date of her first autumn Budget – on Monday afternoon as she pledges to “restore economic stability”.

She will say that a Treasury spending audit she commissioned shows that the previous government overspent this year’s budgets by billions of pounds after making a series of unfunded promises.

She will also accuse the previous Conservative government of “covering up the true state of the public finances”.

A new Office of Value for Money, a Labour manifesto pledge, will start work right away to identify and recommend areas where the Government can save money in the current financial year, she will say.

The office will also seek to stop spending which is poor value for money before it begins.

Ms Reeves will announce reforms that target waste in the public sector and aim to make government departments more efficient.

She will also stop non-essential spending on consultants, dispose of surplus estates and speed up the delivery of administrative efficiencies in departments.

The Chancellor is expected to tell the House of Commons: “It is time to level with the public and tell them the truth.

“The previous government refused to take the difficult decisions. They covered up the true state of the public finances. And then they ran away. I will never do that.

“The British people voted for change and we will deliver that change. I will restore economic stability. I will never stand by and let this happen again.

“We will fix the foundations of our economy, so we can rebuild Britain and make every part of our country better off.”

Labour has insisted it will not raise taxes on working people to fund its manifesto commitments and rely instead on economic growth.

At the same time, Ms Reeves and other ministers have repeatedly pointed to the public finances they inherited as being in a worse state than expected.

This has prompted questions about how they plan to deal with immediate cash flow issues.

Labour has ruled out lifting income tax, VAT, national insurance and corporation tax, potentially leaving changes to pensions relief and capital gains and inheritance levies on the table.

Ms Reeves is expected to say on Monday: “Before the election, I said we would face the worst inheritance since the Second World War.

“Taxes at a 70-year high. Debt through the roof. An economy only just coming out of recession. I knew all those things. I was honest about them during the election campaign. And the difficult choices it meant.

“But upon my arrival at the Treasury three weeks ago, it became clear that there were things I did not know. Things that the party opposite covered up from the country.”

The Chancellor is expected to approve above-inflation pay rises for millions of public sector workers in response to the recommendations of independent pay review bodies.

Teachers and some 1.3 million NHS staff could be in line for a 5.5% pay boost, which could cost about £3.5 billion more than had been budgeted for.

This could rise to about £10 billion if other pay review bodies give similar advice on workforces such as police and prisons officers and doctors and dentists, according to the Institute for Fiscal Studies (IFS).

As this cost has not been fully budgeted for in current plans, the cash would have to be raised through existing fiscal headroom, tweaking fiscal rules or tax increases.

Ms Reeves is also reportedly set to scrap or cut back a number of infrastructure projects.

These could include the £500 million Restoring Your Railway Fund and the A27 Arundel bypass, The Sunday Times reported.

The paper also said the Chancellor will confirm the Government will not commit itself to a new £1.7 billion tunnel under the Stonehenge monument on the A303.

SNP Westminster leader Stephen Flynn urged Ms Reeves not to “pull a George Osborne and starve our public services of much-needed cash” ahead of her announcement.

“People in Scotland voted for change – but the Labour government is paving the way to cut and restrict funding to our NHS, public services and vital infrastructure.

“After 14 years of Westminster austerity our public services cannot take any more. They need an urgent cash boost now – not squeezed budgets and excuses from the Chancellor. You can’t cut your way to better services – and hospitals and schools won’t build themselves.”

On Monday, she will confirm she has commissioned an Office for Budget Responsibility (OBR) forecast to coincide with the Budget and spending review to be held later this year.

She will announce she is committing the government to one major fiscal event per year to end “surprise budgets” and point to the Budget Responsibility Bill, which Labour introduced in the King’s Speech, which aims to guard against large-scale unfunded commitments in the future.

It will compel any Government making significant and permanent tax and spending changes worth more than 1% of the UK’s GDP to put their plans to the OBR.

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