By T. Jayani, JadeTimes News
The new Labour government has been in power for a little over three weeks and has since reported that the state of government departments is worse than anticipated. On Monday, the Chancellor is set to argue that public finances are in poor condition, necessitating tough decisions. This is seen as preparation for potentially unpopular announcements. However, how much of this situation is genuinely unexpected, and how much is political maneuvering?
The state of the country’s finances was already known to some extent. The Office for Budget Responsibility (OBR) publishes financial reports biannually, with the last full breakdown released in November. During the election campaign, it was acknowledged that difficult decisions, such as potential tax increases or spending cuts, were likely. The Institute for Fiscal Studies (IFS) indicated that some government departments could face cuts ranging from £10bn to £20bn, a topic Labour avoided engaging with during the campaign.
Treasury insiders claim there have been unexpected developments since taking office. One significant issue is that public sector pay deals are expected to be more costly than anticipated. Independent pay review bodies have recommended a 5.5% pay rise for teachers and nurses, exceeding the previous government’s budgeted 2%, which will cost billions. If similar increases occur across the public sector, the financial burden will be even greater. Additionally, Labour discovered that hundreds of millions were being spent on the Rwanda scheme, more than previously realized, including operational costs only identified upon reviewing the books. The Department of Health and Social Care has also indicated that hospital building programs in England are more expensive than budgeted.
There are also new spending commitments announced after the Autumn Statement that need immediate funding, referred to as “in year pressures.” The Treasury plans to publish a full report on Monday, detailing what it describes as a “black hole” in the finances, allowing for scrutiny of these claims. However, it was already known that the incoming government would face significant challenges. Rachel Reeves mentioned a difficult inheritance well before the election, stating in June that the OBR had already shown a poor financial state.
This situation extends beyond the economy. Ministers have highlighted other areas like the health service, prisons, and the environment as being worse than expected. For example, the justice secretary has announced the early release of some offenders in England to ease prison overcrowding, attributing this to the emergency left by the previous government. While there were known issues with overcrowding, senior ministers from the last government had pushed for action, which was not finalized before the election. Although some specifics may be clearer now, the general situation was not entirely surprising.
Politically, the new government aims to frame the narrative over the next few years, attributing the dire situation to the previous Conservative administration, thereby justifying unpopular measures. Former Chancellor Jeremy Hunt has dismissed this as nonsense, suggesting Labour is setting the stage for undisclosed tax increases. This strategy is not new; the Conservatives used a similar approach in 2010, blaming Labour for economic woes and justifying austerity, a stance they maintain to this day.
Labour has made clear choices, pledging not to increase income tax, National Insurance, VAT, and corporation tax, and to avoid borrowing for day to day spending. They are likely to agree to pay public sector workers in line with inflation as recommended by pay bodies. Therefore, while the government may have encountered a few surprises, it is also attempting to shape the political discourse and lay the groundwork for future actions.
