Rachel Reeves has accused Jeremy Hunt, her predecessor as chancellor, of lying about the state of the public finances inherited by the Labour government. Hunt has dismissed the claims as “absolute nonsense”.
What is the row about?
An audit conducted by the Treasury since Reeves’s arrival has identified £35bn of potential overspending by Whitehall departments in the 2024-25 financial year. The government does not expect to have to find all of the money and can use its reserves – a rainy day fund – to cover some of the costs. Even so, that would leave projected departmental spending £21.9bn above the totals set by the Treasury in Hunt’s March 2024 budget. Reeves has reduced that figure to £16.4bn by announcing £5.5bn of spending cuts, including the means testing of the winter fuel payments for pensioners.
What does Reeves say?
The chancellor said during the election campaign that she would inherit the biggest mess since the second world war but even so says she has been shocked at the state of the nation’s books. Reeves says the previous government made spending commitments but failed to allocate the money to fund them. She says Hunt covered up what was really happening: “He did that knowingly and deliberately. He lied, and they lied during the election campaign about the state of the public finances.”
What does Hunt say?
Hunt says Reeves has confected a story about a £21.9bn “black hole” as a smokescreen for tax increases in the budget that she was always going to impose. As shadow chancellor, Reeves had privileged access to civil servants before the election, Hunt says, so she was up to speed with the state of the public finances. These were not in nearly as bad a state as Reeves claims, with £9.4bn of the additional spending pressure the result of a decision the chancellor herself has taken: to meet the recommendations of the public sector pay review bodies in full.
So who’s right?
As tends to be the case, things are not entirely clearcut. Reeves cannot claim complete ignorance about the spending pressures and said herself during the campaign that the existence of the independent Office for Budget Responsibility meant it was not necessary to win an election to find out about the state of public finances. But the chancellor’s argument that things were even worse than she expected was bolstered when the OBR’s director, Richard Hughes, said on Monday that he was launching an inquiry into how the departmental spending totals for 2024-25 were prepared. The OBR became aware of the additional spending pressures only last week. Paul Johnson, the director of the Institute for Fiscal Studies, says the numbers Reeves produced were new in that they had not been published before and that he found it astonishing that the £6bn bill for housing asylum seekers had not been budgeted for. Even so, it was always obvious Reeves faced tricky decisions, Johnson says.
Isn’t this just a blame game?
To a large extent, yes. Both Hunt and Reeves want to control the narrative, knowing that the impression left with voters now is likely to stick. Hunt’s message is that the economy and the public finances were on the mend under his stewardship, that extra money for the NHS was linked to productivity gains, and that his £10bn budget cut in national insurance was affordable. Reeves says unfunded promises were made of which the OBR was unaware and that already tough choices will now be even tougher as a result.
How tough will those choices be?
The Treasury may be able to shave a few billion pounds off departmental spending over the coming months, but whatever is left of the £16.4bn will have to be addressed in the budget on 30 October. Public spending totals for the next financial year look implausibly tight and there will be a recurring cost of this year’s public sector pay deals. Taxes are certainly going up. The only question is which ones.
