Chancellor outlines public finances

Chancellor Rachel Reeves has delivered a speech outlining the state of public finances, highlighting a 'black hole', but also offering public sector pay rises.

The government says it has uncovered a £22 billion hole in public spending.

As a result, winter fuel payments will now only be available to pensioners in England and Wales on on pension credit or other means-tested benefits.

According to Reeves, the spring budget published by the previous government did not account for all government spending for the year ahead. As well as this, future spending like infected blood compensation was not included.

Reeves has accused the previous government of covering up the extent of the asylum system crisis and the costs associated with it. The projected overspend on the asylum system was £6.4 billion.

She also highlighted financial mismanagement in the rail industry and military assistance to Ukraine.

Reeves criticised the previous government for not giving evidence to public sector pay review bodies on affordability.

Following on from this, Reeves announced pay rises for public sector staff with teachers offered 5.5 per cent and junior doctors also offered a rise.

In order to make savings, the government will make changes to the Illegal Migration Act, which will reduce the use of hotel accommodation and save nearly £800 million this year.

A £150 million “Investment Opportunity Fund” which has not supported any projects, will be cancelled, as well as some unfunded transport projects.

The New Hospitals Programme will be reset, with currently only 6 hospitals having started their main construction activity and fewer than half of the total 40 starting any kind of construction.

Social Care charging reforms are set to save over £1 billion by the end of next year.

Reeves announced an Autumn Budget for 30 October, with a full economic and fiscal forecast from the Office for Budget Responsibility.

Concluding, Reeves said: "Mr Speaker, the inheritance from the previous government is unforgiveable. I will never do that. I will restore economic stability. I will make the tough decisions. I will fix the foundations of our economy. So we can rebuild Britain. And make every part of our country better off."

In response to the speech, representative of the Welsh Government, Rebecca Evans MS, cabinet secretary for finance, constitution & cabinet office said: "I welcome the urgent action the new UK Government is taking to return economic stability and to take seriously the stewardship of the public finances entrusted to it. Over the last two years, there have been disputes and strikes over pay across the public sector as a result of the previous UK Government’s failure to invest in public services. This has been at a cost to the economy and to the day to day lives of people who rely on these services.

"Today, the Chancellor confirmed the steps the UK Government is taking to recognise the value of those working across the public sector. We are committed to working in social partnership with trade unions to achieve fair pay settlements in Wales which are affordable within our budget and respects the independent pay review body process."

Cllr Claire Holland, Chair of London Councils, said: “We welcome this Spending Review as an opportunity to bring desperately needed stability to town hall budgets and strengthen our role as drivers of local growth.

“Turning the tide on the council finance crisis is crucial for tackling so many of the UK’s most pressing challenges. Whether boosting housebuilding, making faster progress on net zero targets, or arranging social care support that keeps people out of hospital, councils and the services we provide for residents and businesses are essential.

“Insufficient and unpredictable funding has resulted in unsustainable pressures on council finances, as London’s population has grown and demand for services – particularly social care and homelessness support – has skyrocketed.

“Restoring stability to boroughs’ finances will put us in a much stronger position to work in partnership with the government on our shared priorities and help make a positive contribution to its national missions.”

Cllr Pete Marland, Chair of the Local Government Association’s Economy and Resources Board, said: “This Spending Review will be critical to the future of our local services with councils facing a funding gap of more than £6 billion over the next two years.

“Councils hold the key to unleashing the full potential of local communities, tackling our national challenges, relieving pressure on the Exchequer and helping the Government achieve its ambitions. This can only happen if councils have the right powers, sufficient and sustainable funding that reflects current and future demand, certainty and multi-year settlements and less bid-based funding pots. Right now, councils are being pushed to the brink with rising adult social care costs, children’s placements and temporary accommodation.

"Councils have had to find billions in savings as a result of increasing demand for, and costs of, services alongside local government core spending power being reduced in real terms by around a fifth from 2010/11 to 2024/25. Any further funding reductions in the years ahead would be an unthinkable prospect with councils of all types already struggling to protect the services which bind our communities together and protect our most vulnerable from cutbacks.

“The current system of funding local government is out of date, opaque, overly complex, and limits the ability of councils to be more self-sufficient by raising income from other sources. In recent years, council tax has also increasingly been relied on too heavily to increase councils’ core spending power. While council tax is an important funding stream, it has never been the solution to the long-term pressures facing councils.