Agencies
Britain’s new Labour government axed several construction projects and withdrew a winter fuel payment for millions of retirees Monday to cover what it called a newly found 22-billion-pound ($28 billion) shortfall in the public finances inherited from the previous Conservative administration.
In her first major speech as Treasury chief, Rachel Reeves accused the previous government of covering up the dire state of the nation’s finances following a review of departmental spending that she commissioned three weeks ago in the wake of Labour’s landslide victory.
“They ducked the difficult decisions, they put party before country and they continued to make unfunded commitment after unfunded commitment, knowing that the money was not there, resulting in the position that we have now inherited,” she said.
Reeves said the government would aim to recoup 5.5 billion pounds of the total this year and 8 billion next year.
Reeves noted a 6.4 billion-pound overspend this year on the asylum system, partly connected with the failed plan to send migrants on a one-way journey to Rwanda.
She said spending on the war in Ukraine had not been fully funded, and confirmed that the government would honor commitments made to the country.While not announcing any changes in taxes, Reeves set out a series of “difficult” savings, including the establishment of an office to identify “wasteful spending.”
She announced plans to stop nonessential spending on consultants and sell off surplus property. Some transport projects where funding has yet to be determined will be axed, include a controversial tunnel near Stonehenge, while the previous government’s new hospital program will be scrapped and replaced by one that is “thorough, realistic and costed timetable for delivery.”
Perhaps most controversially, Reeves announced that a winter payment currently going to all retirees to help pay for fuel will now be given only to those most in need.
A plan to limit the costs individuals pay for their care in old age will be abandoned.Reeves put lawmakers on notice that there may be some tax increases when she delivers her first budget on Oct. 30.
It will involve “taking difficult decisionsacross spending, welfare and tax.” Labour, back in power after 14 years, pledged during the campaign that it wouldn’t raise taxes on “working people,” saying its policies would deliver faster economic growth and generate the additional revenue needed by the government.
Reeves could look to raise more revenue by other means such as closing tax loopholes, particularly on capital gains or on inheritance.
Critics, especially her predecessor Jeremy Hunt, argue that Reeves is trying to score early political points in the new Parliament, and that she knew full well the state of the public finances during the general election.
“Today’s exercise is not economic, it’s political,” Hunt said in response to Reeves’ speech. “She will fool absolutely no one with a shameless attempt to lay the grounds for tax rises that she didn’t have the courage to tell us about.”
Reeves also announced a series of pay agreements with unions. She confirmed that the government had reached agreement with unions to end the long-running strike of junior doctors in England at the start of their careers. It will see them getting a 22% pay increase over two years.
“Today marks the start of a new relationship between the government and staff working in our National Health Service, and the whole country will welcome that,” Reeves said.
The state of the NHS was a main debating point in the election, with Labour saying it is “broken” as some 7.6 million people wait for care.
