CHANCELLOR Rachel Reeves is set to announce the existence of a black hole in public finances to the tune of £20 billion on Monday, party sources said today.
She will give an update on a spending audit by Treasury officials and respond to the public-sector pay recommendations as the government faces having to find money for above-inflation rises.
Health Secretary Wes Streeting said the government will not “duck difficult decisions” in its budget, with “tough choices” required ahead of her update.
“The Chancellor will continue to show iron discipline and she will have the full support of the entire Cabinet,” he told Times Radio.
Reports have suggested that teachers and NHS workers could be in line for a 5.5 per cent pay boost, which could cost about £3.5bn more than had been budgeted.
Any tax hikes to plug the shortfall in spending for essential public services are not expected before the autumn Budget, the date of which Ms Reeves is also set to announce on Monday.
Labour has ruled out lifting income tax, VAT, National Insurance and corporation tax, but changes to capital gains or inheritance levies may be on the table.
The Chancellor is widely expected to be forced to raise taxes in the Budget to avoid the spending squeeze implied by the existing plans and to meet her fiscal rule to have debt falling as a share of gross domestic product in five years’ time.
Former Labour leader Jeremy Corbyn MP said: “The government says there are ‘tough choices to be made.’
“Where have we heard that before? Austerity is not the answer. Why can’t we invest in our children’s futures instead?”
A Labour source suggested a near £20bn annual gap between revenues and funding commitments had been found, including in areas such as asylum and public-sector pay.
The figure could however still shift as each department’s spending commitments are assessed before Ms Reeves’ Commons statement.
Richard Murphy, professor of accounting practice at Sheffield University Management School, said: “By pretending that she has discovered a problem that everyone knew existed, she simply makes it look as if she has not been paying attention for years.
“It is now to be hoped that she does announce additional support for essential public services and does not, instead, deliver yet more Tory-style austerity.”
