During the general election, I made a promise to the British people: to restore economic stability. I did so because I saw the damage taking risks with the public finances can cause. Liz Truss’s mini-budget, less than two years ago, crashed markets and caused interest rates to soar.
Stability is the essential ingredient to a successful economy. The stability that allows a family to buy their own home, for a business to thrive and for a government to invest in public services.
Within hours of the election result, that promise was put to its first test when I was briefed by officials about the true state of the public finances. The findings from the subsequent audit were horrifying and laid bare the scale of the challenge we had inherited from the previous Conservative government.
An overspend of more than £6.4bn on the asylum system, including the failed Rwanda policy, that was unfunded and undisclosed. An overspend of £1.6bn in the transport budget, that was unfunded and undisclosed. And – worst of all - unfunded commitment after unfunded commitment made by Conservative ministers without any idea where the money was going to come from.
The nation’s reserve, set aside for genuine emergencies, was spent three times over only three months into the financial year. In total, the Treasury’s audit revealed that the new government had been left with a £22bn black hole in the country’s finances that was covered up from the British people.
The spending watchdog – the independent Office for Budget Responsibility (OBR) – confirmed that it had only been made aware of the spending pressures after the general election, and the Institute for Fiscal Studies’ own report last week found the handling of the asylum budgets under the Conservatives to be woeful.
The deficit is now £4.7bn higher than the OBR forecast in March because the Conservatives were spending and borrowing more than they had revealed.
The black hole exposed a Conservative party leadership that had once again put its own interests before the country’s. It made bad choices and covered up the consequences from the public. Tory ministers were spending taxpayers’ money like there was no tomorrow because they knew someone else would have to pick up the bill. Party first, country second.
It’s not like we have not seen it before. Boris Johnson, who partied in Downing Street during the pandemic and then tried to cover it up. Truss, who crashed the economy with a reckless ideological budget and hid her plans from the OBR.
That first month, it was made clear to me that unless I acted urgently, market confidence in the UK’s fiscal position could be seriously undermined. That would have meant higher debt, higher mortgages and higher prices in the shops. I was not prepared to let that happen.
So we took those tough decisions. Cancelling road projects that were promised by the previous government without the money to pay for them. Reviewing the new hospitals programme to ensure we are not offering patients false hope, but an honest and realistic plan to rebuild our NHS.
Asking departments to find savings to resolve years of industrial dispute to give our doctors, nurses and police officers the pay rise they deserve. And protecting the most vulnerable pensioners by means testing the winter fuel payment.
I know these are tough choices, especially on winter fuel. They were not the choices I wanted to make or expected to make, but they were the right choices to put our country on a firmer footing. Because by taking the tough decisions now to protect the public finances, we can begin the process of change.
That includes protecting the triple lock on pensions, which saw the state pension rise by £900 this year and a further rise will be announced at the budget in October.
It means creating a national wealth fund so we can deliver the long-term investment in the jobs and opportunities of the future. It means keeping our manifesto commitment to no increases in income tax, national insurance or VAT.
And it means reforming our planning system to get Britain building again, including ending the disastrous ban on onshore wind and delivering on our commitment for 1.5m new homes.
There will be more tough choices on spending, welfare and tax at the budget. I’m not going to pretend otherwise. Keir Starmer has spoken about a decade of national renewal because he knows, as the country knows, it will take time to repair the damage the Tories did to our economy.
But although the foundations have been damaged, the fundamentals of our country remain strong. We have some of the greatest minds and businesses in the world – and our determination to deliver a brighter future has not been diminished.
We can restore economic stability, rebuild our public services, boost living standards, unlock growth, spread prosperity and make every part of our country better off. That’s the change the country voted for.
And, if we fix the foundations, that’s the change this Labour government will deliver.
• Rachel Reeves is chancellor of the exchequer
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