Chancellor says Tories “hid” true extent of Treasury overspend as Labour sets out plan for economic growth
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Laying out Labour’s plan for economic growth, Chancellor Rachel Reeves said the new government has “inherited” a £22 billion projected overspend from the outgoing Conservatives. Earlier today, the Director of the Institute for Fiscal Studies (IFS) said £20 billion is “exactly the scale of the national insurance cuts implemented by Jeremy Hunt” ahead of the last election.
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Hide AdSpeaking to the House of Commons, Ms Reeves said: “The Government published its plans for day-to-day spending in the spring budget in March. But when I arrived in the Treasury, on the very first day I was alerted by officials that this was not how much the previous government expected to spend this year – it wasn’t even close.
“In fact, the total pressures on these budgets across a range of areas was an additional £35 billion. Once you account for the slippage in budgets you usually see over a year and the reserve of £9 billion designed to respond to genuinely unexpected events, it means that we have inherited a projected overspend of £22 billion.
“A £22 billion hole in the public finances now, not in the future, but now – £22 billion of spending this year that was covered up by the party opposite. If left unaddressed it would mean a 25% increase in the budget deficit this year.”
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Hide AdThe scale of the black hole in public spending which the Government has warned of is said to be equivalent to the Tories’ pre-election national insurance cuts, a think tank has said. Paul Johnson, director of the Institute for Fiscal Studies, told BBC Breakfast: “It is very striking that if this problem is about £20 billion big that is exactly the scale of the national insurance cuts implemented by Jeremy Hunt just before the election. Now, if those cuts were implemented in the knowledge that there was this kind of hole that is not good policy to put it mildly.”
The Chancellor has said the Tories “hid” the true extent of Treasury overspend from the public. She told the Commons: “Let me be clear. I’m not talking about costs for future years that (the Conservatives) signed up to but did not include, like the compensation for infected blood, which has cross-party support. I’m not talking about the state of public services in the future, about the crisis in our prisons which they have left for us to fix.
“I’m talking about the money that they were already spending this year and had no ability to pay for which they hid from the country. They had exhausted the reserve, and they knew that, but nobody else did.
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Hide Ad“They ducked the difficult decisions, they put party before country and they continued to make unfunded commitment after unfunded commitment, knowing that the money was not there, resulting in the position that we have now inherited.
“The reserve spent more than three times over only three months into the financial year, and they told no-one. The scale of this overspend is not sustainable. Not to act is simply not an option.”
However, shadow transport secretary, Helen Whately, has argued the Government is trying to set a narrative to pave the way for tax rises, saying the Chancellor “would have known about the state of the public finances” while serving in opposition because of the Office for Budget Responsibility.
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Hide AdMs Whately added: “Actually while Labour is going out there and trying to tell everybody that it is all so difficult for them, this is just them setting a narrative for tax rises that they want to bring in later on.”
In her speech to the Commons, Ms Reeves has said it is “not true” that the Government’s “books were open” prior to the general election. She said: “Some, including the Leader of the Opposition and the shadow chancellor, have claimed the books were open. How dare they. It is not true and let me tell you why.
“There are very clear instances of specific budgets that were overspent and unfunded promises that were made, but that, crucially, the OBR was not aware of for their March forecast.”
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