Starmer to face PMQs as reports claim Treasury must cover '£40bn funding gap' in Budget
Good day. Governments engage in expectations management, and the latest example appears on the front page of the Monetary Occasions this morning, where there is a story saying that Rachel Reeves, the chancellor, has identified a “funding gap of £40bn” while preparing the budget, which is happening a fortnight ago today. in its history George Parker and Sam Fleming report:
UK Chancellor Rachel Reeves has identified a £40bn funding gap ahead of her budget in two weeks – much larger than previously expected – as she prepares big tax rises to fix the NHS.
The figure represents the funding Reeves needs to protect key government departments from spending cuts in real terms, cover the lasting impact of a £22bn annual overspend and create a fiscal cushion for the rest of parliament.
Officials close to the budget process have told the Monetary Occasions that the Treasury is looking for ways to close a £40 billion deficit, and that tax rises will form the centerpiece of its response.
The Monetary Occasions also notes that Reeves told cabinet colleagues yesterday that the budget would require “difficult decisions on spending, welfare and taxes”.
A “funding shortfall” is what is otherwise described as a black hole in the accounts, and it can be difficult to keep track of what the best estimate of the black hole is because the figures keep changing. Here's a quick summary.
The £22bn black hole: In a statement to MPs in July, Reeves said the Treasury had identified a £22 billion gap (difference between the amount the government would have to spend and the amount actually set aside to spend) in the annual accounts (i.e. for the 2024-25 budget).
The £100bn black hole: At the time, Reeves presents the £22bn as primarily an issue for the current financial year. But, as Pippa Crerar reports today, she is telling colleagues that the £22bn gap will apply in the years ahead, adding up to a £100bn black hole over the next five years.
The future black hole of up to £20 billion generated by unrealistically low spending allocations for years to come: During the election campaign, the Institute for Fiscal Studies (IFS) and other think tanks repeatedly warned that the outstanding figures set by the Conservatives for the next five years were implausibly low and that, in practice, governments would have to spend between £ 10 billion and £20 billion a year more to prevent the collapse of public services. This black hole adds to the £22bn black hole by 2024-25 identified by Reeves.
In an interview with Right Now this morning, he was asked about the new Treasury funding gap figure of £40bn (which government sources have confirmed to the BBC), Paul Johnsondirector of the IFS, did not dispute the figure. He said a “significant amount of additional tax” would be needed but said he did not expect taxes to rise by £40bn a year. He said:
If we get tax increases on that scale [£40bn]that would really be extraordinary, I mean unprecedented. They would be tax increases three times larger than those that George Osborne, for example, introduced in 2010 in the depths of the aftermath of a financial crisis.
But having said that, if you, as a government, want to not only protect public services, but significantly increase spending on the health service and increase spending on other things in line with the size of the economy, yes, there is a very big hole. big. in public finances.
Of course, we've always known that. We had this discussion during the elections, when [the IFS] They were warning that there were these problems, and Keir Starmer and others were saying: 'No, no, no, there is no such problem.'
Now £40bn is a big figure. In fact, you can get there relatively easily, in terms of the scale of additional spending that will be necessary in the future. Some of that will be covered by slight changes to tax rules. Part of that will be covered by some of the tax increases Labor already has planned. But that would still require a significant amount of additional tax revenue.
Figures like £40bn don't end up in the Monetary Occasions and the BBC by accident, and at this stage of the budget cycle most budget-related government communication is best understood as expectations management.
But managing expectations can mean two things. It may mean exaggerating how bad things are likely to go, so that voters are pleasantly surprised that day. But it may simply mean spreading difficult news very slowly, so that when it is finally confirmed and announced, it is not as shocking as it could have been. It's hard to be sure, but what the Treasury is doing now is probably more in favor of the latter than the former.
Here is the agenda for the day.
10:30 a.m.: Robert Jenrick, one of two Conservative leadership candidates still in the race, will give a speech on the economy.
Noon: Keir Starmer takes on Rishi Sunak at PMQs.
After 12:30 p.m.: MPs are debating a Liberal Democrat opposition day motion calling for several measures to end the carer's benefits scandal, including canceling existing overpayments.
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