WELFARE benefits are in Labour’s sights as the “black hole” the government claims to have inherited from the Tories appeared to expand alarmingly.
Chancellor Rachel Reeves is now understood to be looking at bridging a funding gap of £40 billion in her budget due on October 30.
This will have to be covered by tax rises and spending cuts, with the axe most likely to fall on benefits.
And the pain looks likely to continue, as Ms Reeves now believes there are unfunded commitments worth around £100bn over the lifetime of this Parliament.
Hitherto, ministers have spoken of a £22bn black hole, a figure Prime Minister Sir Keir Starmer repeated in the Commons today, but Ms Reeves told the Cabinet earlier this week that plugging that gap would still leave public services facing real-terms cuts.
Measures under consideration clearly include raising employers’ National Insurance contributions but, given Labour’s aversion to a wealth tax or raising corporation tax, it is all but impossible for the £40bn to be found from revenue increases alone.
Paul Johnson, the director of the Institute for Fiscal Studies, said £40bn worth of tax rises alone would be “extraordinary.”
“Some of that can be covered by slight changes in the fiscal rules, some of that will be covered by some of the tax rises the party is already intending,” he said.
However, Mr Johnson added that a “significant” amount would still be left over even after these measures.
“If they’re looking for £20bn or £30bn of tax rises, in the end, they will have no choice but to do something with income tax,” he said.
But Labour has ruled out income tax rises, leaving only spending cuts.
Ms Reeves’s Treasury deputy Darren Jones equivocated when asked to rule out cuts to vital services.
He said: “We will not be returning to austerity and we will present an honest set of spending plans that deal with the £22bn black hole that we inherited from the previous Conservative government.
“That will be hard, but it’s the right thing to do.”
Mr Jones promised better services somewhere down the line.
A Downing Street spokesman added: “We have continued to be honest with the British people that there are going to be difficult decisions in this budget, and that’s because of the mess that the Conservatives left the economy in.”
