Casablanca’s chancellor committed to filling the black hole in public finances | Business News

Rachel Reeves will echo one of the great cameos in film history on Monday when she updates Parliament on the findings of a Treasury audit of public finances.

Channeling Claude Rains’ masterful performance as Captain Louis Renault in Casablanca, she will tell parliamentarians that she is shocked by the state of public financesand blame the defeated Conservative government for the mess.

In Casablanca, the joke is that Captain Renault has long known that Humphrey Bogart’s Rick runs a casino in the back of his eponymous cafe.

In fact, he is one of their most regular customers.

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The accusation you will face the chancellor is that, like the morally pragmatic Renault, it feigns surprise for political purposes.

There is no question that public finances are in a serious state. Public services have been under pressure at record levels since SNS waiting lists for overcrowded prisonswith staff recruitment and retention hampered by a widening pay gap in relation to the private sector.

The tax burden is already at its highest level since the Second World War and the national debt is reaching almost 100% of GDP, costing almost £90 billion a year in interest payments to service.

Of course, it is legitimate for a chancellor to ask her new staff to assess the scale of the challenge.

I understand that Reeves’ audit will add to the picture by presenting figures on projects and issues not included in current spending plans, including perhaps the judicial system, immigration and imminent one-off costs such as compensation for victims of infected blood It is Postal scandals.

And it is both undeniable and politically irresistible that it points to the conservative government’s management of the economy, both in the past and in assumptions for the future.

In his latest budget, Jeremy Hunt stipulated public spending increases of just 1% for each of the next five years, a figure that implies unsustainable austerity-level cuts to unprotected departments – which even the OBR described as “worse than a fiction” for its lack of detail.

Most of this became clear months ago, however. Much of it was set out in detail by the Office for Budget Responsibility (OBR), and the promise to address it was at the heart of the Labor Party’s pledge to the electorate.

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Throughout the election campaign, economists and commentators highlighted that none of the main parties addressed the looming hole in public finances.

The Institute for Fiscal Studies has called it a “conspiracy of silence” and is about to be right in its prediction that, in office, a new chancellor would open the books and claim astonishment.

If there is cold political logic to not scare the electorate about what is to come, Ms Reeves and Labor now have to face the economic imperative with very little room for manoeuvre.

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The chancellor surrounded herself on all sides. She has ruled out increases in key income and business taxes, which contribute 70% of government revenue, and maintains budgetary rules that limit borrowing in the name of stability.

We won’t know what she plans to do to fill the black hole on Monday.

But we will get a budget date, a spending review and maybe a decision on public sector wageswhich should be an agreement of 5.5% above inflation for millions of workers.

We will also have the beginning of the easing process, before a likely combination of some tax increases, some spending restraint and an approach to debt calculation to provide a little more “headroom”.

If he gets it right, Reeves hopes that, like Rick and Captain Renault, this will be the beginning of a beautiful friendship with the electorate.