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Chancellor Rachel Reeves will on Monday confront a “catastrophic” spending inheritance from a Conservative government which “covered up” a crisis in the public services, a cabinet minister claimed on Sunday.
The comments by Steve Reed, environment secretary, mark a ramping up of Labour rhetoric ahead of Reeves’s statement to MPs, which will pave the way for tax rises in the Autumn Budget as well as spending cuts.
The statement will be a defining moment in this parliament, as Reeves tries to pin the blame on Rishi Sunak’s Tory government for what she has called “tough decisions” ahead.
In a foretaste of the bitter fight to come, a Conservative official claimed Reeves was “lying to the British public” about the state of the public finances to justify tax rises that she had planned all along.
Jeremy Hunt, shadow chancellor, said: “Having promised not to raise taxes 50 times before the election they now need a pretext. But trying to scam the British people so soon after being elected is a high-risk strategy doomed to fail.”
Hunt argues that Reeves cannot credibly claim to have unearthed fiscal horrors since arriving in office, given that the books are scrutinised publicly by the independent Office for Budget Responsibility.
Indeed Reeves, in an interview with the Financial Times before the election, said: “We’ve got the OBR now.” She added: “We know things are in a pretty bad state. You don’t need to win an election to find that out.”
Reeves will argue on Monday that the OBR, whose last report on the fiscal outlook was in March, could not have seen some of the “in-year” pressures that have built up or were allegedly concealed by Hunt and his colleagues.
Reed rehearsed the argument on Sunday, telling the BBC: “We knew the inheritance was going to be bad.” But he added: “We’ve got into our offices now, we’ve seen what’s really been going on, and it’s catastrophic.”
Labour has already claimed to have unearthed what it says was a concealed crisis in Britain’s prisons, while there are pressures in areas such as the asylum system, defence and the NHS.
Reed claimed: “The Conservatives have not only not released the information but in some cases they deliberately covered it up.” Government officials have suggested the “fiscal hole” could be about £20bn.
That is denied by the Conservatives, who know that Reeves wants to hold them wholly responsible for painful tax rises and spending cuts to come — an argument Labour will try to run all the way into the next election.
As well as pressures on day-to-day spending, Reeves is expected to announce delays to capital projects, including roads and hospitals, with government insiders claiming that schemes are “unfunded and on unfeasible timescales”.
The Treasury has not rejected speculation that Reeves’s statement is a softening up exercise for tax rises in the autumn. Treasury officials always have a list of options to be presented to the chancellor ahead of a Budget.
Given that Reeves has excluded raising rates of income tax, national insurance, VAT or corporation tax — levies that cover 75 per cent of revenues — the Treasury’s list of options is heavily circumscribed.
They include cutting tax relief on pension contributions for higher earners — a long-standing Treasury favourite, which was briefly considered, then abandoned, by Tory chancellor George Osborne in 2015.
Capital gains tax or inheritance tax are other obvious targets as Reeves seeks to protect what she calls “working people”. Rises to duties, including fuel duty, would be controversial in that regard.
The Resolution Foundation think-tank on Sunday called for a review of what it calls “busted wealth taxes”, arguing that capital gains tax and inheritance are badly designed and ripe for reform.
It has argued that Reeves could remove incentives for some people to treat income as capital gains by equalising rates of CGT and income tax. The Resolution Foundation also called for a review of reliefs in the system.
On all of these proposals, Labour’s pre-election mantra was that Reeves had “no plans” to put up taxes, beyond the limited rises contained in the party’s manifesto.
The Resolution Foundation’s former director Torsten Bell is now a Labour MP and working as a parliamentary aide to Pat McFadden, the cabinet office minister and a leading figure in the new government.
