Chancellor Rachel Reeves looking to ‘find £40bn’ in budget

Published

10 hours ago

October 16, 2024

admin

Rachel Reeves is looking to fill a £40bn black hole in the country’s finances, Sky News understands.

According to people close to the budget, the gap in funding identified by the chancellor is more than twice what was previously thought.

Politics latest: Stark warning issued over national insurance rise

Ms Reeves has previously said the Conservatives left the new government with a £22bn shortfall, requiring “tough decisions” like axing the winter fuel payment.

This has led to speculation Labour may introduce measures such as a national insurance increase for employers to raise more cash.

The Treasury does not comment on budget speculation.

According to the Financial Times, the £40bn figure represents the funding the chancellor needs to protect key government departments from real terms spending cuts, cover the impact of the £22bn overspend from the last administration and build up a fiscal buffer for the rest of parliament.

The paper said she was eyeing big tax rises to patch up the NHS in particular.

However, the government has left itself with little wiggle room after ruling out a rise in national insurance, income tax and VAT in its manifesto.

Ministers have since said that this meant not “increasing tax on working people” – leaving the door open for the employer element of national insurance to go up.

Budget talk all spin – and we should be used to it

Jon Craig

Chief political correspondent

@joncraig

The “black hole” just got deeper. Or so the chancellor claims.

After telling us for weeks that the funding gap was £22bn, Rachel Reeves says it’s almost double that: £40bn. Fact? Or political propaganda?

She’s told the cabinet the £22bn “black hole inheritance” from the Tories needed to be filled “just to keep public services standing still”.

And Sir Keir Starmer told ministers – at a “political cabinet” with no civil servants present – that the budget would see “tough decisions so we can invest in the future”.

In other words, if the chancellor is to avoid big spending cuts in front line services like health and education, there’ll have to be more unpopular tax rises.

The timing of this apparent deepening of the “black hole” is highly significant. It comes as Labour faces accusations of breaking its manifesto pledge not to increase national insurance.

The new £40bn figure has emerged just hours before Sir Keir faces Rishi Sunak at prime minister’s questions and a potentially embarrassing onslaught over the national insurance tax hike.

A conspiracy theorist might even suggest the new £40bn claim was a cynical attempt by Downing Street to divert attention from the row over the PM meeting Taylor Swift and the star’s blue-light escort.

Shadow chancellor Jeremy Hunt has already claimed the £22bn figure is a lie. But then George Osborne accused Labour of leaving a £12bn black hole when he became chancellor in 2010.

It’s all spin, of course. We should be used to it by now. Reeves also told the cabinet the government can’t turn around 14 years of decline in one year or one budget.

Yet at the same time she said the budget would “protect working people, fix the NHS and rebuild Britain”. That’s an ambitious boast, if the “black hole” really is £40bn.

A one percentage point increase in the Class 1 rate could raise £8.45bn over the 2025 to 2026 tax year, and a two percentage point hike could raise £16.9bn, according to data compiled by HMRC and EY.

Meanwhile, introducing national insurance on employer pension contributions could raise around £17bn per year if taxed at the same 13.8% rate, according to the Institute for Fiscal Studies (IFS).

Experts have cautioned that any increase in employer national insurance would mean higher costs for businesses, which could impact their staff and customers.

Paul Johnson, director of the IFS, told Sky News on Tuesday night that the tax rise could lead to less pay rises and fewer jobs.

The influential thinktank estimates Ms Reeves may need to raise up to £25bn from tax increases if she wants to keep spending rising with national income, and honour Labour’s pledge not to return Britain to austerity.

As well as tax rises, there is also speculation Ms Reeves could change her fiscal rules to enable more borrowing.

It is thought the chancellor could change how debt is calculated, which could in turn alter how much debt the UK officially has and give Ms Reeves room to borrow more.

Politics

Forcount ‘Ponzi scheme’ promoter sentenced to 20 years in prison

Published

6 hours ago

October 16, 2024

admin

Forcount ‘Ponzi scheme’ promoter sentenced to 20 years in prison

According to US prosecutors, Juan Tacuri, and his co-conspirators, defrauded investors of $8.4 million in an apparent Ponzi Scheme.

Politics

Cabinet ministers write to Starmer in urgent attempt to soften spending cuts in budget

Published

7 hours ago

October 16, 2024

admin

Cabinet ministers write to Starmer in urgent attempt to soften spending cuts in budget

Cabinet ministers are writing to the prime minister in an urgent attempt to soften some of the spending cuts being demanded ahead of the budget.

The main measures for the budget have to be decided by the end of Wednesday and sent to the Office for Budget Responsibility before the Treasury shuts up for the evening.

Sky News can confirm letters from cabinet ministers complaining about the budget have gone over the head of Chancellor Rachel Reeves to Sir Keir Starmer and Number 10.

Politics latest: Cabinet members deeply concerned over scale of cuts

Some of these letters are believed to have gone in over the last couple of days.

After today, only small changes can ordinarily be made to the budget, typically around involving items of tens or hundreds of millions rather than billions. The existence of the letters was first reported by Bloomberg.

Some cabinet ministers are deeply concerned about the scale of the cuts being demanded in some areas to fund pay rises and spending increases elsewhere.

It is understood that Number 10 has received complaints from four government departments: the Ministry of Housing, Communities and Local Government, the Department for Transport, the Department for Environment, Food and Rural Affairs, and the Ministry of Justice.

Not all of these complaints were made through the medium of a letter.

It is understood the call for an intervention by Number 10 has helped soften a small portion of the cuts for some cabinet ministers’ departments.

But largely the shape of the budget, which is for the most part wrapped up tonight, has remained unchanged – and so have the nerves about how it will land in two weeks.

At the weekend, Sky News revealed one cabinet minister said: “The briefing doesn’t match the reality. It’s pain this year, and pain next year. We’re simply going to be digging a hole which we end up filling in later in the year.”

Ms Reeves will loosen the borrowing rules in the budget in order to give herself more room for spending, along with raising up to £40bn in tax rises and welfare cuts in order to relieve pressure on budgets.

But the cost of significant public sector pay rises, which are still going to have to be found from within departmental budgets, mean cuts this year and next are still being demanded by the Treasury.

Some ministers believe the cuts are unsustainable, while some have pointed to the first round of spending reductions announced before the summer – including the winter fuel allowance changes – as evidence more input from Number 10 is needed ahead of the budget and spending review on 30 October.

One government source told Sky News: “The whole of Number 10 is focused on the budget at the moment and there isn’t much bandwidth for anything else.”

👉 Tap here to follow Politics at Jack and Sam’s wherever you get your podcasts 👈

Government figures insist that letters voicing concern are routinely sent at this point in a spending review process and that this is all normal.

Both Sir Keir and Ms Reeves are out of the country next week, the week before the budget. However, only smaller changes can typically be made after today to the shape of it.