Fallout Persists from Alleged ‘22 Billion Black Hole’ Assertion
The Budget watchdog has found a £9.5 billion shortfall in the previous government’s spending plans, but this figure does not match Labour’s claim, which the Tories have called ‘fictitious’.
The Office for Budget Responsibility (OBR) has confirmed that the previous Conservative government did not provide all available information at the last budget, but it has not substantiated the Labour government’s claim of a £22 billion black hole in the nation’s finances.
On Wednesday, the OBR stated it had uncovered £9.5 billion in “spending pressures” that it was not informed of before former Chancellor Jeremy Hunt’s fiscal statement in March. The OBR mentioned that its spending judgment would have been significantly different had it been aware of this information.
Chancellor Rachel Reeves addressed the alleged gap in the public finances in her Budget on Wednesday afternoon, a gap that the Conservatives have dismissed as “fictitious.”
In its report, the OBR, an independent body, made no reference to the £22 billion figure claimed by Labour after winning the general election in July.
The OBR chairman, Richard Hughes, stated that the government’s additions to spending plans this year incorporate both Labour’s policies and the effort to bridge the £9.5 billion shortfall.
Related Stories
The document states that a “materially different judgment” about spending would have been reached if all of the information had been shared with them ahead of Hunt’s March budget.
‘Not an Astronomer’
Hughes told a press briefing on Wednesday that he is an “economist not an astronomer” and “we don’t deal in black holes in the OBR.”
He clarified that the £22 billion figure represented the £9.5 billion they had identified plus extrapolations by the present government. He explained that their forecasts are based on the information provided, and back in March, the Treasury had information about £9.5 billion pressures on public spending that the OBR was not aware of.
Referring to the undisclosed information, Hughes noted, “It would have been materially higher, that’s all we can say.”
He mentioned that in this government’s Budget, around £23 billion has been added to departmental expenditure limits for the fiscal year, reflecting both funding the identified pressures and new policies introduced since March.
Speaking to Sky News on Wednesday afternoon, Hughes clarified that “nothing in our review was a legitimization of that £22 billion.”
Public Sector Pay
The OBR’s review document highlighted that decisions on public sector pay and how those costs can be met may impact spending plans significantly.
The government has granted pay increases to workers in various public sector professions since taking office in the summer.
Former prime minister and chancellor Rishi Sunak informed the House of Commons that the OBR did not support the Government’s statements on the state of the public finances.
Sunak, in his final appearance as Tory leader, accused the Chancellor of trying to “politicize” the independent watchdog.
In response to the Budget in the Commons on Wednesday afternoon, Sunak stated, “The OBR has in fact declined to back up her claims of a fictional £22 billion black hole.”
He emphasized, “It actually appears nowhere in their report.”
Sunak expressed disappointment in the Chancellor, stating, “It is deeply, deeply disappointing that she has sought to politicize the independent OBR that should be above party politics.”
‘Genuinely Bleak Legacy’
Sunak informed MPs that Labour’s 2024 inheritance is vastly different from the “genuinely bleak legacy” that the Conservatives inherited after the 2010 general election.
Labour attributed the economic challenges to the global financial crisis of 2008, while the Conservatives criticized them for their management of the economy during Gordon Brown’s premiership.
Liam Byrne, a former Labour chief secretary to the Treasury, famously left a note to his successor, David Laws, stating “I’m afraid there is no money. Kind regards – and good luck!”
Although Byrne later stated it was meant as a joke, the Conservatives criticized him for the remark.
The Tories then implemented ten years of austerity measures with severe cuts to public spending under former Chancellor George Osborne.
Prime Minister Sir Keir Starmer emphasized that Wednesday’s budget aimed to prevent a return to devastating austerity and protect the interests of working people without significantly increasing taxation, while also providing a substantial cash injection to public services.
After Reeves’ budget statement, Sunak accused her of manipulating figures and raising taxes to record levels.
He stated, “The chancellor and prime minister have tried to say that they had no choice, but let us be in no doubt: their misleading claims about the state of the economy are nothing but a cynical political device.”
He pointed out, “It is deeply disappointing that she has sought to politicize the independent OBR, which should be above party politics.”
Hunt and Reeves clashed over the issue at Treasury questions in the Commons ahead of the Budget, with the shadow chancellor accusing Reeves of inventing a fictitious black hole to justify tax increases.
‘Wipe The Slate Clean’
Reeves responded, highlighting the seriousness of the public finances situation and criticized Sunak for attacking independent economic institutions, comparing him to politicians from her party’s ideological extreme.
She cautioned, “The shadow chancellor risks taking his party down the same path.”
Former prime minister Truss and her chancellor Kwarteng sidelined the OBR when introducing measures in 2022 during Truss’s brief time in Downing Street.
Reeves stated she does not intend to repeat the £40 billion tax increases from her first Budget.
She expressed the Budget as an opportunity to “wipe the slate clean” after the Conservatives’ time in power, defending the decisions made.
Reeves’ announced decisions will result in the overall tax burden reaching a record 38.3 percent of gross domestic product (GDP) in 2027-2028, the highest since 1948 post-Second World War recovery.
