In a statement to the House of Commons on 30 July, the new Chancellor Rachel Reeves revealed a £22 billion black hole in government finances for this year, alongside a range of immediate cost-cutting measures. She also announced that further “difficult decisions” will be contained in the Autumn Budget, due on 30 October.
In her first announcement on entering 11 Downing Street, Reeves said that she had commissioned a “spending inheritance” review from the Treasury. Why she needed to do so was questioned, among others, by the opposition, who argued that the state of public finances had been made clear in the March report from the Office of Budget Responsibility (OBR). However, the OBR’s grim outlook was studiously ignored during the election campaign by both the main parties, prompting the Institute for Fiscal Studies to complain of “a conspiracy of silence”.
Post-election, the new ministers were told to ‘bring out your dead’ – listing the financial problems their departments faced. The result was a steady flow of dire warnings on prisons, the NHS, universities and more. Then, on 23 July, the National Audit Office issued a welter of gloomy reports, the publication of which had been delayed by the election.
Finally, on 30 July, Rachel Reeves bundled together her Treasury-commissioned review with all that bad news and broke the IFS’s conspiracy of silence. In her words, “There were things that I did not know” which in total represented a projected overspend of £22 billion in the current financial year. Both the OBR and the IFS subsequently suggested that Reeves had discovered more problems than were apparent in the documents produced at the time of the Spring Budget 2024.
Plugging the hole
The Chancellor announced a range of measures to achieve savings of £5.5 billion in the current financial year and £8.1 billion in 2025/25, including:
- Restricting the eligibility for the winter fuel payment to pensioners in receipt of pension credit or certain other means-tested benefits, saving about £1.4 billion in 2024/25 and £1.5 billion in 2025/26. At the same time, Ms Reeves confirmed that the triple lock would remain in operation. Next April, this will almost certainly mean the main state pensions rise in line with earnings, at a rate of over 5%.
- Scrapping the already twice-deferred launch of the social care funding cap in England, which had been due to start in October 2025.
- Finding savings in all departmental budgets totalling £3.15 billion in both 2024/25 and 2025/26 to help fund pay settlements.
- Abandoning two major road projects – the A27 (Arundel by-pass) and the A303 (Stonehenge tunnel).
- Ending the Restoring our Railways scheme.
- Dropping the proposed Natwest retail share sale, but still disposing of the government’s remaining shareholding in the bank, probably by 2025/26.
- Reviewing the hospital building programme.
Coming down the track
Alongside her statement to the House of Commons, the Treasury published a variety of related documents, including:
- A new paper on the reform of domicile rules that incorporates the additional revenue-raising changes set out in the Labour manifesto.
- Draft legislation and explanatory notes on how VAT will be applied to private school fees and charitable rates relief removed. A technical note states that “Any fees paid from 29 July 2024 pertaining to the term starting in January 2025 onwards will be subject to VAT.”
- Draft legislation on the abolition of furnished holiday lets regime from April 2025, as previously proposed in the Spring Budget 2024.
- A call for evidence on the tax treatment of carried interest, a topic primarily of interest to fund managers in the private equity industry.
- A letter from the Chancellor to the Chair of the OBR setting out updates to the Charter for Budget Responsibility. These are designed to prevent a repeat of Liz Truss’s mini-Budget in September 2022 and to require the Treasury to provide the OBR with in-year assessments of pressures on expenditure.
October Budget
Ms Reeves also revealed that her Autumn Budget would be on 30 October – later than had originally been expected. She said that it “will involve taking difficult decisions to meet our fiscal rules across spending, welfare and tax”. However, she reiterated Labour’s manifesto pledge that there would be no increases in national insurance; the basic, higher or additional rates of income tax; or VAT.
In an interview with the News Agents podcast this week, following her speech in Parliament, Ms Reeves said “I think we will have to increase taxes in the Budget.”
That points to capital gains tax, inheritance tax and tax reliefs as possible revenue-raising targets in the autumn.
Ahead of any possible changes, talk to us about the wisdom (or otherwise) of acting before 30 October by emailing enquiries@pmm.co.uk
Ensure you are up to date with the Chancellor’s announcements in the upcoming Autumn Statement by attending one of our seminar events on the 31 October. Our panel of experts will be providing valuable insights into what the government’s plans mean for you and your business. Find out more and book your place by clicking here.
