Debate Continues Over Public Finance Shortfall

The Labour government was unaware of an annual £22bn public spending overshoot upon assuming power in July, the chancellor has reiterated. Rachel Reeves informed the BBC that she had “no idea about all the unfunded commitments that the previous government had made”. Her remarks come after the independent Office for Budget Responsibility (OBR) released a review stating that the Treasury had not disclosed information it possessed regarding £9.5bn in spending commitments made by the preceding government. Shadow chancellor Jeremy Hunt countered that the OBR had not criticized the Conservatives and had indicated it was “impossible to know” how much of the £9.5bn might have been offset by savings in other areas. Speaking on BBC Radio 4’s Today Programme, Reeves asserted that “nobody knew” about the “in-year overspend,” which she referred to as the “black hole.” She elaborated that when the new government obtained the monthly borrowing figures for the initial six months of the year, they were already £11bn higher than the OBR’s March forecast. “Times that by two to take us to full year… £22bn more,” she added. On Wednesday, the government’s official forecaster, the OBR, issued a review stating it had not been informed by the Treasury about “large pressures” on public spending during the March Budget period. The OBR reported that spending measures amounting to £9.5bn were not disclosed to it, resulting in an inaccurate understanding of the public finances’ condition. It indicated that “had this information been made available,” it would have arrived at “a materially different judgement” regarding government spending for the current financial year. Its assumption of a £2.9bn underspend, published in its Economic and Fiscal Outlook at that time, would “very likely have been dropped,” and it would have instead produced a “materially higher” forecast for spending this year. Nevertheless, the OBR specified it could not quantify how much higher its forecast for departmental spending would have been. Reeves increased taxes by £40bn in the Budget, a move she partly attributed to the Tories having made a “series of promises” which they “had no money to deliver.” However, Hunt informed the BBC: “Even if the chancellor is right about this £22bn black hole – and I don’t know anyone who actually believes her – she didn’t increase taxes by £22bn, she increased them by £40bn… this was a conscious choice.” The chancellor’s rationale for higher taxes relies significantly on the OBR document, which the government regards as the justification for the Budget. During her inaugural Budget speech, Reeves stated the preceding Conservative government had made spending promises they could not fund, and that this had been “covered up from the British people… and covered up from this House.” She announced she was publishing a line-by-line breakdown of the “black hole that we inherited.” This revealed “hundreds of unfunded pressures on the public finances… this year and into the future too.” In July, the Treasury released an analysis detailing £22bn of additional spending pressures it encountered. Labour characterized this as the “black hole” it inherited. On Wednesday, the OBR reported a comparable increase in spending for the year, totaling £23bn, which it categorized as the omitted £9.5bn and the expenses of new policies declared since the March Budget. On Wednesday, the chancellor declared: “Never again will we allow a government to hide the true state of our public finances from our independent forecaster.” Reeves further stated her intention to implement all 10 recommendations presented by the OBR in its review concerning the future relationship between the forecaster and the Treasury. In response to Reeves’ Budget speech, opposition leader Rishi Sunak dismissed Labour’s assertions about the inherited state of the economy as “purely ludicrous,” asserting the tax increases were Reeves’ decisions. “These are her [Reeves’] choices. So, stop blaming everyone else and take responsibility,” he declared. “Her decision to let borrowing rip make a total nonsense of her claims on the state of the public finances, because if they were truly in such a dire strait, as she has said, what we should have seen today was a significant reduction in borrowing to repair them, not the splurge that she has just unleashed.” Hunt had earlier criticized the OBR for failing to act in a “politically impartial manner” by publishing its findings on Budget day. In a letter sent to Hunt over the weekend, OBR chairman Richard Hughes stated the review concerned the “adequacy of the information and assurances provided to the OBR by the Treasury regarding departmental spending.” Mr Hughes clarified that the findings and recommendations pertained to the “institutional relationship” between the OBR and Treasury. He further clarified the review did not pertain to the conduct or decisions of ministers.