Key things to watch as Chancellor Rachel Reeves announces spending cuts | Politics News

By now you probably know that at 3.30pm the new chancellor will inform MPs about an approximately £20 billion black hole in the public finances, necessitating immediate and painful spending cuts today and paving the way for tax rises in a budget of October.

Rachel Reeves and her team will challenge conservatives on who knew what and when the deficitand I hope this argument is ringing in voters’ ears by summer.

But as much as Labor insists this is all a surprise – with some justification, though not total – Monday afternoon will tell us a lot we didn’t know about Britain’s future, with plenty of clues about what comes next, down to the smallest details and nuances. .

Here are the key things to watch out for.

What exactly is today

Reeves will say the last Conservative government “over-budget” in the 2024/5 financial year, which began in April, by around £20 billion.

It will then establish some immediate cost savings, to cover some – but not all – of this £20 billion.

Ms Reeves was told that “we could not leave such a large deficit without immediate action” – presumably due to market reaction – so the gap in overspending will be reduced (but not made up) by immediate “very, very painful” savings. ” for Budget 2024/5.

Reeves is the most powerful person he will ever be at this point: so expect the toughest political choices. It will also then provide the budget date, where it is fair to assume that the rest of the deficit will be made up by tax increases and other spending cuts.

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What doesn’t come today

The “black hole” in the coming years. The £20 billion figure and the still unknown amount of immediate spending cuts relate only to 2024/5, i.e. this financial year. Everything else is for future budgets and spending reviews.

This is important because there are some items, such as the tainted blood compensation scheme (with a price tag of around £10 billion and not yet accounted for) that are a “future year issue” and therefore will not appear in the second -Monday and are an unpleasant thing waiting for another day. .

Could things like this require more spending cuts or tax increases in the future? Today may not be as bad as it seems.

Look closely at how different spending categories make up the ‘black hole’

We have a good idea of ​​some, but not all, of the items that caused the £20 billion “black hole”.

The state of prisons is one, while the rising bill for keeping asylum seekers in hotels is another.

However, also parallel to this, as part of the £20 billion “black hole”, will be the decision by ministers to accept the pay review body’s recommendations on public sector wages: a 5.5% increase above inflation for 450,000 teachers and 1.5 million NHS staff.

This will not have been fully budgeted for by the previous Conservative government – ​​not because they left a “black hole” in any conventional sense, but because agreeing to the pay review body’s recommendations is a political choice.

In an alternative universe in which the Tories won the election, a Sunak government would probably not have fully accepted the pay bodies’ recommendations, especially if it meant they could not deliver the tax cuts promised in the manifesto.

Therefore, some items in the “black hole” are a consequence of political choices. Even Labor in opposition has not said it would automatically accept the pay review body’s recommendations. This may broaden the definition of “black hole” for some.

And look at the numbers even more closely

We read that it will cost up to £10 billion to meet the pay review body’s suggestions and that hotel costs for asylum seekers cost £4 billion a year. However, part of both will have already been accounted for – what matters is the deficit.

So check the baseline. The Treasury will have done so.

Is Reeves right that this is all a surprise? Or is the IFS right that she should have known something like this was coming?

The new chancellor and her team are considering attacking the Institute for Fiscal Studies, which has repeatedly stated that much of the “excessive spending” was predictable and could have been budgeted for.

The think tank, like the Conservatives, will say that much of this was self-evident, but Labor deliberately did not want to get involved in a discussion about spending cuts or tax rises beyond the narrow manifesto set, so they deliberately ignored things like the evident crisis in prisons. from weekly numbers.

Labor will argue that annual adjustments on this scale are very rare and that they must act now to reassure markets because this is reckless. Arbitrating this debate on Monday will be far from simple.

If there was an emergency black hole, as Labor claims, how was this allowed to happen?

Labor claims that Reeves was presented with a “black hole” figure on her first day in office: it is not the product of research; she was there waiting for them the day she took office.

However, if Rishi Sunak and Jeremy Hunt had genuinely acted in a grossly irresponsible way in relation to the public finances, wouldn’t there be evidence they could provide?

Was it Simon Case, the cabinet secretary, or James Bowler, the permanent secretary to the Treasury, who raised the alarm?

There are “ministerial guidelines” – letters formally opposing the spending decisions of previous Conservative ministers – consistent with the Labor Party’s account of what happened, to show objectively that the previous government was behaving as recklessly as the Will Mrs. Reeves affirm?

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Will Mr Hunt say he would pay the reserve deficit?

The Treasury has a contingency for emergencies, known as a reserve.

Jeremy Hunt may have planned to attack the reserve. But how will the Labor Party use the reserve in the future? Will you promise not to do things the same way? We may not find out on Monday, but it’s a question for the future.

Where will the cuts come from?

All we will get on Monday will be some spending cuts to existing budgets for 2024/5 in order to make up for the year’s deficit.

This is likely to include the immediate suspension of road projects such as the tunnel under Stonehenge, and the suspension of Boris Johnson’s 40 hospital construction projects. This will set off a huge political uproar and will likely upset some on his side who are directly affected by the cancellations. But this is just the beginning.

What… more cuts? And what budget to observe…

Yes. Some of the excessive expenses identified today will have repercussions in future years. And some of the budget deficits will be one-off or short-term revenue generators.

We will not know the full impact of the cuts until the spending review on the same day as the budget.

In particular, I understand that Labor MPs should look at the social care budget. This is something the Treasury is keeping an eye on, fearing it is getting out of shape.

So far, all ministers’ messages around social welfare have been quite conciliatory – but tougher measures will have to be taken to control the expansion of budgets in a short space of time.

Will the biggest strategic decision be the one that will barely be noticed today?

Reeves will say there will be a spending review on the same day as the October budget.

Critically, this will be a one-year review, rather than the three-year review that was being considered a month ago.

In other words, Reeves will determine how much government departments will have to spend shortly after the party conference, but has avoided doing a three-year spending review that would have covered most of parliament so soon.

Why delay the big three-year spending review?

There are probably two big reasons for this.

Firstly, a spending review should be a time when all of the Conservatives’ spending is scrutinized, but with another spending review a year later the pressure is off to analyze spending line by line at breakneck speed. There is a chance for better decisions to be made.

Secondly, the government may well face a rather gloomy forecast from the Office for Budget Responsibility, especially given its decision to inherit fiscal rules. Postponing the main spending review for a year gives the opportunity for improvements in growth forecasts, meaning there is more money available for public services.

An agreement in the near future could be quite bleak indeed. While forecasts can be either downgraded or upgraded, and given the likely global turmoil in the coming months, nothing can be taken for granted.