The Conservatives have left the worst economic inheritance since the Second World War.

I will restore economic stability and fix the foundations of our economy. pic.twitter.com/r9mY1t4GVy

— Rachel Reeves (@RachelReevesMP) July 30, 2024

The Tories left Britain’s finances in their worst state since the Second World War.

The OBR has confirmed this week they were only told about the massive overspends in Jeremy Hunt’s Spring Statement last week.

This confirms the Tories covered up a huge £22 billion black hole in their budget before the election.

People in Plymouth will be rightly angry about the mess the Conservatives have left the UK in. Never believe what they say about the public finances ever again.

That’s why Rachel Reeves set out a clear position to get the foundations in place for a strong economy.

Make no mistake, Labour has inherited a difficult financial position. But we will never shy away from taking the steps needed to fix Britain.

Rachel Reeves statement on the UK’s finances – 29 July

Before the election, I knew that we would have a very challenging inheritance. This is why, upon becoming Chancellor, I instructed Treasury officials to undertake a rapid audit of the state of public spending that we have inherited from the previous government.

The full audit is available in the House of Commons Library. To summarise, it shows that the departmental overspend is forecast to be £21.9 billion above the resource departmental expenditure limits set by the Treasury in Spring Budget 2024. Some of this stems from the fact that departmental budgets for 2024-25 were set at Spending Review 2021 in cash terms, with inflation having been significantly higher than was forecast at the time. But the previous government also did not factor in the impact of a series of new pressures on the public finances and did not take difficult decisions needed to address these.

Unlike the previous government, this government is prepared to take difficult decisions. Today I set out the immediate steps we are taking to address this challenge.

Immediate action on spending pressures

The government is taking immediate action to manage the pressures revealed in the audit. These total £5.5 billion in 2024-25 and £8.1 billion in 2025-26, with details of the unfunded commitments that I am cancelling – and the difficult decisions that I am making – set out in the full audit being published today.

Public sector pay

For years, our public services have struggled to recruit and retain the staff they need. The previous government presided over the worst set of strikes in a generation, causing significant impacts to public services and disproportionate impacts on the most vulnerable in society, the public finances and the economy. The previous government also broke with common practice by not publishing evidence of what it could afford for this year’s pay awards and did not set aside the money that was likely to be needed.

This government is accepting the independent Pay Review Bodies’ recommendations to provide stability for our public services. The Treasury will ensure that departments absorb at least £3.2 billion of the public sector pay pressure this year, including by helping departments to bear down on waste and drive efficiency.

Restoring public spending control and reforming public services

Finally, I am absolutely committed to restoring public spending control and reforming public services.

The Treasury will continue working closely with departments on managing down pressures in the usual way ahead of a Budget on 30th October, which will also settle departmental budgets for 2025-26 and confirm them for 2024-25. I have also commissioned an economic and fiscal forecast from the Office of Budget Responsibility (OBR) for this date. The Budget will confirm how the government’s robust fiscal rules will be met. I have also today launched a multi-year Spending Review to conclude in spring 2025.

This Spending Review will embed an approach to government that is mission-led, reform-driven and enabled by new technology. It will focus on prevention and integration of services, the opportunities of artificial intelligence to improve public service outcomes, and supporting people into work including by reforming the welfare system.

I have also announced changes that will fundamentally strengthen the spending and fiscal frameworks. A revised Charter for Budget Responsibility which confirms the detail of these reforms will be published alongside the Budget. These reforms will sit alongside action I have already taken including introducing the fiscal lock in legislation through the Budget Responsibility Bill.

Economic stability

The spending decisions I am making today are difficult and are not decisions I wanted to make. But they are the right decisions in difficult circumstances to begin fixing the foundations of our economy and restore economic stability.

ENDS