Cabinet ministers have been ordered to search for cost-cutting reforms and prepare for difficult decisions over spending, as chancellor Rachel Reeves and her team formally begin the process of compiling a pivotal review of public spending.
The chancellor has already made clear that she is planning to raise taxes and take tough decisions on welfare and spending in what will be a crucial autumn for the new Labour government. She will present her first budget and a spending review setting departmental budgets for this year and next.
Despite her surprise decision last month to end universal winter fuel allowance payments to pensioners as part of plans to close what she described as a £22bn black hole in spending, it is understood £16bn is still needed to bridge the gap this year.
Darren Jones, the chief secretary to the Treasury, has now written to cabinet ministers ordering them to find reforms and deploy technology that can save cash. He has also warned that funding will only be prioritised for the “first steps” announced by Keir Starmer during the election campaign – reducing NHS waiting lists, launching a new border security command, teacher recruitment and cracking down on antisocial behaviour.
All spending requests will be tested against whether they will help deliver these priorities by the new “mission boards” already set up in Whitehall by Starmer. While insiders would not be drawn on whether departments are being asked to draw up cuts, the demand for reform and innovation suggests some will be asked to provide the same services for considerably less in some areas.
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She is planning to slash fraud and error from the welfare system, and to cut down on government consultancy contracts. But those moves alone will be far from enough to make the savings or revenue increases she is seeking. Capital gains tax, relief on pension contributions and inheritance tax have all been raised as possible cash-raising targets. Reeves has also refused to rule out tweaking fiscal rules in a way that would give her slightly more room for investment spending.
So they come to power on a change platform promising to fix our “broken” country, but then invite austerity back for an encore. Urgh.
It seems Britain is breaking because our political class no longer believes in change itself.
Until inflation is under control, Labour can hardly start to loosen the purse strings.
I’m a big believer in modern monetary policy and I’d be all for printing money to spend on categories where there is excess capacity that could be put to use. But that has to be managed with strict eye on inflation and clearly we can’t be printing money when inflation is still high.
Under MMT taxation is just a tool to reduce inflation - why not introduce a yearly maximum income and collect everything else above as tax to manage inflation?
Well, a yearly maximum is likely to deter investment. But don’t let that statement fool you; I’m all for taxing wealth and all for taxing very high income.