Britain’s Labour government, led by Chancellor of the Exchequer Rachel Reeves, announced significant budget cuts in response to what it described as a financial mess left by the previous Conservative administration. Reeves revealed a £22 billion deficit in the country’s finances this year, citing excessive spending needs compared to expected revenue. To address this gap, she introduced measures to save about £5.5 billion this year and another £8 billion next year, including cuts to consultant spending and ending a controversial program to deport asylum seekers to Rwanda.
Reeves criticized the Conservatives for making spending commitments, such as road repairs and new hospital constructions, without securing the necessary funds. Some of these plans will now be scrapped or reviewed. “The scale of this overspend is not sustainable,” Reeves told Parliament, indicating that a more comprehensive budget plan would be presented in late October.
A significant portion of the budget deficit is attributed to Labour’s decision to increase public sector pay. Following recommendations from independent review bodies, Reeves agreed to raise public sector wages by about 6% this year, adding £9 billion to the budget. She stated that government departments would need to identify £3 billion in savings to help cover these costs.
In an effort to end ongoing strikes, junior doctors in England were offered a 22% pay raise over two years. This move marks a departure from the Conservative government’s stance, which resisted pay increases above inflation rates, arguing that such raises would exacerbate inflationary pressures.
Labour, under Keir Starmer, campaigned on a platform of restoring economic growth after 15 years of economic stagnation in Britain. However, the party inherited challenging fiscal circumstances, including a high tax burden, increased debt interest payments, and underfunded public services. Labour’s cautious approach before the election included scaling back green investment plans and avoiding large public spending commitments, maintaining a focus on reducing debt levels.
Reeves, upon taking over at the Treasury, conducted an audit of public spending plans and found the situation more dire than expected. She highlighted unexpected overspending in the asylum system and the transportation department, with the former needing £6.4 billion more and the latter £1.6 billion more than anticipated. To address these issues, Reeves announced the establishment of an Office of Value for Money to identify potential savings for the fiscal year.
Economists have long warned that the public finances would require significant adjustments post-election. Spending plans for individual departments were set until April next year, but beyond that, the outlook was uncertain. The existing budget implied substantial cuts to already stretched departments, such as courts, prisons, and local government, to accommodate increased spending on health care, education, child care, and defense.