Chancellor Reveals Spending Cuts Plan with Possible Tax Increase and Further Reductions
Rachel Reeves approved pay increases for teachers and NHS workers, while cutting spending on commitments such as hospitals, roads, and pensioner fuel payments.
Teachers and NHS employees will receive pay boosts above inflation, but several Tory spending promises, including new hospitals and transport projects, will be scrapped, as announced by Rachel Reeves on Monday.
The new chancellor revealed a series of budget cuts, attributing a £22 billion shortfall to the previous government since Labour took office.
Reeves mentioned the launch of a multi-year spending review, with plans to outline budgets for the current and upcoming financial year on October 30. She acknowledged the necessity of making tough decisions across different sectors in her first budget.
In her address to Parliament, Reeves highlighted that Labour inherited a £22 billion projected overspend this year.
Projected spending overruns included costs related to supporting asylum seekers, transportation, and aid for Ukraine.
Spending Cuts
The chancellor committed to honoring Ukraine pledges while cancelling various unfunded Tory initiatives, such as the Rwanda deportation plan and the investment in a new qualification framework for 16- to 19-year-olds.
Additionally, £1 billion worth of transport projects and the construction of 40 hospitals were axed.
Winter fuel payments will be reduced for those not receiving pension credit or certain benefits, with a focus on promoting awareness of pension credit uptake.
Labour ministers had speculated about potential tax increases following claims of a budget shortfall due to the Tories.
Despite the need to make tough fiscal decisions, Reeves affirmed Labour’s commitment to not increasing national insurance rates, income tax, or VAT.
Pay Boosts for Teachers, NHS Staff
Reeves unveiled a 5.5 percent above-inflation pay rise for NHS workers and teachers, costing an extra £9 billion this year.
She directed departments to find savings to cover the expenses, emphasizing accountability and potential future reforms.
Union leaders welcomed the pay rise decisions, with the National Education Union planning to discuss the offer and recommend it to members.
Hunt: Labour Claim
Shadow chancellor Jeremy Hunt criticized Reeves for attributing half of the budget hole to pay increases for public sector workers.
Hunt questioned the discretionary nature of these pay awards, suggesting productivity enhancements as a means to fund the raises.
Reeves’s decisions on pay, welfare reform, and productivity programs were scrutinized, with Hunt suggesting they were choices rather than necessities.
Noting that government choices influenced the spending shortfall, the director of the IFS think tank highlighted the impact of public pay increases on the budget.
PA Media contributed to this report.
