Newly appointed Chancellor of Exchequer Rachel Reeves disclosed a £22B ‘spending-hole’ left behind by the Conservative government, following their electoral defeat to Labour on July 4th. The overspend was discovered during the first financial audit under Reeves’ governance. A frustrating combination of failures to meet various investment pledges, shortfalls in public service demands, and exorbitant spending leaves Labour to deal with the £22B spending deficit.
The Office for Budget Responsibility (OBR) showed that borrowing had exceeded its forecast on many occasion in 2024, including by over £3B in March. A £6.4B overspend in the asylum system was also pinpointed, likely connected to the Conservative’s failure to send migrants to Rwanda.
Rachel Reeves has stressed on many occasions, including in interviews with BBC and LBC, her desire to grow and restructure the UK economy through foreign investments. However, in her recent speech at the House of Commons, she announced the ‘incredibly tough’ measures Labour will take to revive the UK’s economic strength. This includes axing many projects, such as the ‘Restore your Railway Fund program’, a hospital expansion program proposed by the Conservatives, and the construction of a tunnel near Stonehenge. Even more contentiously, Reeves plans to cancel winter fuel payments to all pensioners Nationwide. These measures were all ‘difficult’ yet ‘necessary’.
Even these measures won’t cover the overspend. While no new tax or welfare measures were yet announced, the Chancellor said they were still to come. Many anticipate that these measures will be addressed in the next fiscal quarter in October 2024. She also plans to sell NatWest shares- a measure proposed by ex-Finance Minister Jeremy Hunt and previously contested by Labour. Reeves said that Hunt’s proposition during that time didn’t have enough financial merit.
The success of the Labour Party hangs in the balance while they deal with the fiscal hole drilled by the Conservatives, whilst delivering on pledges made to boost investment and public sector income.
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