Rachel Reeves, the Chancellor of the Exchequer, recently addressed the House of Commons to present the findings of a Treasury spending audit. This detailed examination has been anticipated, following her previous remarks on assessing the legacy of public spending.
The audit uncovered a substantial £22 billion in unfunded commitments inherited from the previous government. Notable among these are pledges related to the Rwanda scheme, the Advanced British Standard, and the New Hospital Programme. Additionally, there were shortfalls in funding due to the lack of adjustments to departmental budgets for public sector pay settlements.
To begin addressing this overspend, the Chancellor announced immediate savings of £5.5 billion for the current year, with an additional £8.1 billion expected next year. The measures include:
- Winter Fuel Payments: Limiting these payments to individuals already receiving other State support, noting that these payments are devolved in Scotland and Northern Ireland.
- Rwanda Migration Partnership: Cancelling this partnership and applying retrospection to the Illegal Migration Act.
- Investment Opportunity Fund: Cancelling this fund along with other smaller projects.
- Future Projects: Cancelling the Advanced British Standard and various unaffordable road and railway schemes.
- New Hospital Programme: Reviewing the future of this initiative.
Furthermore, the Chancellor confirmed the acceptance of the Independent Pay Review Body's recommendations for a 5.5% average pay uplift for public sector workers.
The Chancellor also introduced new plans for Spending Reviews to occur biennially, with a three-year scope to ensure a seamless overlap with previous reviews. This approach aims to foster a more integrated public finance strategy.
Continuing with recent practice, the Chancellor committed to a single major fiscal event each year, likely maintaining the pattern of an autumn Budget covering all significant tax and spending announcements. Any spring Statement would likely address the second forecast from the Office for Budget Responsibility.
In anticipation of the Budget scheduled for 30 October, the Chancellor outlined forthcoming tax measures:
- VAT on Private Schools: Ending tax breaks from 1 January 2025.
- Non-Domicile Regime: Replacing it with a new residence-based regime, in line with previous government plans.
- Energy Profits Levy: Extending this levy to 31 March 2030, with tightened investment allowances and an increased rate of 38% from 1 November 2024.
- Carried-Interest Loophole: Closing this loophole, which has allowed private equity fund managers to reduce their tax liability.
These announcements align with the Labour Party manifesto and are not unexpected.
Despite these measures, the £22 billion shortfall in public spending remains unresolved. It is yet to be seen whether the upcoming October Budget will introduce further stringent measures. The Chancellor may be opting to deliver the difficult news now, capitalising on the post-election climate, while reserving positive announcements for the Budget.
We will continue to monitor and update you on these developments. Should you have any concerns about how these measures might affect you, please do not hesitate to contact us. We are here to assist you.
For further details, see the Chancellor's statement on public spending inheritance.