Rachel Reeves scales back universal winter fuel payments to plug 'black hole' on public finances

Rachel Reeves has accused the Conservatives of leaving a £22bn “black hole” in the public finances that the Labour government will have to repair through “difficult” decisions like binning unfinished projects and restricting the winter fuel allowance.

In a House of Commons statement on Monday afternoon, the Chancellor said she would set out the “scale and seriousness” of the fiscal inheritance left by the previous Tory government, with the Treasury producing a fresh review of public finances.

She also announced the Autumn Budget will take place on 30 October, alongside an economic and fiscal forecast from the Office for Budget Responsibility (OBR) and a multi-year spending review that will look ahead to the years 2025 and 2026. 

First Minister John Swinney said the decisions announced today would "mean tough decisions ahead for Scotland".

The previous government led by Rishi Sunak published its plans for day to day spending in the Spring Budget in March. However, Reeves said she was told on her first day in the Treasury a few weeks ago that the published numbers were not “even close” to what Sunak and the then-chancellor Jeremy Hunt actually expected to spend.

“We have inherited a projected overspend of £22bn, a £22bn hole in the public finances now, not in the future, but now, £22bn pounds of spending this year that was covered up by the party opposite.

“If left unaddressed, it would mean a 25 per cent increase in the budget deficit this year.”

The Chancellor listed examples of specific budgets which were overspent, including on the asylum system and the Rwanda deportation plan, failing to budget for handing out cash to rail companies to make up for passenger shortfall, and not setting enough money aside to pay for support to Ukraine.

Reeves said the previous government overspent on the asylum budget by £6.4bn, and on the transport budget by £1.6bn.

She added that the OBR had not been made aware of these overspends for their March forecast earlier this year.

On the same day, the OBR has launched a review into the preparation of the March forecasts, with the independent body saying it was "made aware of the extent of these pressures at a meeting with the Treasury last week”.

The OBR added that the findings from the audit would constitute “one of the largest year-ahead overspends” outside of the pandemic. 

“Instead of responding and dealing with the consequences, [the Conservative government] shirked the decisions that needed to be taken,” Reeves said.

“I will not repeat their mistakes. Where the previous government provided no transparency to the public and no certainty for public services, we will be open about the decisions which are needed and the steps that we are taking.”

The UK government will accept in full the recommendations of the independent pay review bodies.

However, Reeves told MPs “difficult decisions” across spending, welfare and tax would have to be made, including making savings across all government departments.

She announced that universal winter fuel allowances for pensioners would be scrapped, so that only those in receipt of means tested benefits would receive the allowance. 

“Let me be clear, this is not a decision I wanted to make, nor is it the one that I expected to make, but these are the necessary and urgent decisions that I must make,” she said.

The Scottish Government had planned to replace winter fuel payments with the Pension Age Winter Heating Payment this winter.

Responding to the statement, Swinney said the UK Government must "drop" the planned cuts and "set new spending rules that support investment".

He added: "We warned this was the reality and today has seen that truth validated. Now, if they do not change course, the reality of the UK’s finances will inevitably affect the funding available to us here in Scotland. Their decisions today mean tough decisions ahead for Scotland.

“What is particularly worrying is that the Chancellor announced she is not fully funding the public sector pay deals she has accepted. Instead, cuts are being demanded across most of Whitehall. That means that we will not receive full Barnett consequentials from these pay deals."

Shadow Chancellor Jeremy Hunt responded by saying the “black hole” unveiled by Reeves was “fictitious”. “Those public finances were audited by the OBR just 10 weeks before the election was called,” he said.

“We are now expected to believe that in that short period, a £20bn black hole has magically emerged. Every single day in that period, in fact, since January, in line with constitutional convention, [Reeves] has had privileged access to the Treasury permanent secretary. She could find out absolutely anything she needed.”

He added that she had “broken the trust” of people with an “utterly bogus attempt to hoodwink the public” and that they could expect a “U-turn” on increasing taxes in the near future.

Additional reporting by Louise Wilson. A version of this article first appeared on our sister website, PoliticsHome.