Around 10 million pensioners will lose their winter fuel payments under new plans announced by the chancellor.
From this autumn, those not on pension credit or other means-tested benefits will no longer get the annual payments, worth between £100 and £300.
A planned cap on social care costs and several major rail and road projects have also been axed, as Rachel Reeves said she had to make “urgent decisions” because of the previous government’s “undisclosed” overspending.
Shadow chancellor Jeremy Hunt said her claims were “spurious”.
The Conservatives had been open about the state of the public finances while in power, and Ms Reeves had held talks with Treasury officials before the election, Mr Hunt said.
Speaking to a packed House of Commons, Ms Reeves described the economic legacy she had been left as “unforgivable” and announced a series of decisions designed to reduce spending.
However, she also announced that public sector pay recommendations were being accepted in full, meaning 5.5% rises for NHS workers and teachers, 6% for the armed forces, 5% for the prison service, and 4.75% for the police.
In addition, junior doctors have been offered a 22% pay rise over two years.
The pay deals will cost an additional £9.4bn, with two-thirds of this funded by central government, and all departments asked to find savings totalling £3bn to make up the rest.
The result of the pay awards and the recalculated departmental spending, was a “£22bn hole in the public finances” Ms Reeves’ said, requiring immediate reductions in spending.
Cancelled projects
The following infrastructure projects have been scrapped:
- A two-mile road tunnel close to Stonehenge
- A bypass to take traffic on the A27 away from Arundel in West Sussex, which had already been put on hold by the previous government
- Former Prime Minister Boris Johnson’s plan to build 40 new hospitals in England by 2030
- The Restoring Your Railway Fund – a scheme designed to reopen previously closed rail lines
In addition, Ms Reeves said several other policies of the previous Conservative government would not go ahead, including:
- A planned cap on care charges for older people
- The planned sale of publicly owned NatWest shares
- The Rwanda deportation scheme for illegal migrants
- The Advanced British Standard, a qualification which former Prime Minister Rishi Sunak said would replace A-Levels and T-Levels
While Mr Hunt disputed the idea that there were hidden overspends, some economists, including the Office for Budget Responsibility (OBR) and the Institute for Fiscal Studies (IFS), appear to be backing some of Ms Reeves’ claims that there were surprises lurking in departmental budgets.
But her decisions have also been called a “political choice” by economists and Conservative politicians.
For instance, Paul Johnson, director of the IFS, said that “half of [the] spending ‘hole’ is public pay over which government made a choice and where pressures were known”.
A visibly angry Ms Reeves said the former government had committed to spending money it did not have and that it did not tell the independent economic watchdog, the Office for Budget Responsibility (OBR), about this.
“How dare they?” she said, referring to claims the books were “open”.
Ms Reeves said the unfunded overspend from the previous government included £6.4bn on the asylum system, including the Rwanda scheme, a number that Mr Johnson from the IFS said was “huge” and that did “genuinely appear to have been unfunded”.
The OBR said in a letter published on Monday that it was “made aware of the extent of these pressures at a meeting with the Treasury last week”.
It said this could “constitute one of the largest year-ahead overspends against… forecasts outside of the pandemic years”.
As a result it is reviewing how it prepared its forecast for the March 2024 Budget and will assess “the adequacy of the information and the assurances provided to the OBR by the Treasury regarding departmental spending”.
‘Biggest betrayal in history’
Mr Hunt denied the previous Conservative government had covered anything up and accused Labour of misleading the public on tax rises.
“Taxes will have to go up, and she chose not to tell us,” he said, forecasting that Ms Reeves’ first Budget would be the “biggest betrayal in history by a new chancellor”.
The chancellor said during her speech that the next Budget would be on 30 October.
She also said that public sector spending reviews will happen once every two years – the last one happened in 2021.
A Covid corruption probe will try to get back the £2.6bn Labour says was “lost” in dodgy contracts signed during the pandemic.
In accordance with Labour’s manifesto, private schools will be taxed at 20% from 1 January next year, and oil and gas companies will face a higher windfall tax.
Liberal Democrat Treasury spokesperson Sarah Olney urged Labour to go further to make large companies “pay their fair share” of tax.
Labour has previously said it will not borrow to fund “day-to-day costs”, which means it would only pay for current expenditure using the money it raises in tax. It also pledged to have debt falling by the end of the parliament.
During the election campaign, the Conservatives made similar commitments on taxation and spending.
Economists said at the time both parties would either need to cut spending or raise taxes under their self-imposed fiscal rules.