UK chancellor statement shows Labour’s commitment to fiscal prudence

The chancellor of the exchequer, Rachel Reeves, made a statement to the House of Commons on 29 July to announce departmental savings and the establishment of a new ‘Office for Value for Money’. The new office will set out to address what has been described as a “black hole” in the UK’s public finances. The chancellor outlined that the Labour government has inherited a projected overspend of £22 billion this year alone, which she must now mitigate.

Scott Wright, public policy expert at Pinsent Masons, said: “For Labour, this speech is as much about controlling the political narrative and laying the foundations for the actions the party will take to achieve the ambitions set out in its core missions. For businesses, it emphasises the need to ensure that when seeking to engage government, any policy proposals must be fully costed if they are to secure a fair hearing from ministers, with policies which are cost neutral, or which might be able to actually save the government money, likely to be favoured at this time.”

To reduce the funding deficit, the chancellor confirmed that Labour will seek to save £5.5bn this year and a further £8bn next year. This will be achieved by stopping all non-essential spending on consultancy and government communications, as well asking departments to reduce back-office costs.

Reeves also proceeded to set out several policies and projects that that will no longer proceed. These include the Advanced British Standard qualification, the Rwanda asylum scheme and Investment Opportunity Fund. Proposed work on the A27 and the A303 will no longer go ahead, and the ‘Restoring our Railways’ scheme will be scrapped with individual projects to be considered as part of a wider review by the transport secretary. Additionally, adult social care reform charges will not proceed, and the hospital programme announced by former prime minister Boris Johnson is under review. Winter fuel payments currently paid to all pensioners will be scrapped and only provided to those on means tested benefits.

The chancellor announced that this year’s autumn budget will take place on 30 October, and that it will involve “difficult decisions on spending, welfare and tax” in order to “protect the foundation of our economy”. However, she reiterated that the Labour government will not raise taxes for working people.

Reeves also announced a multi-year spending review will conclude in spring 2025 which will set the budgets for government departments for at least three years to provide "long term certainty". This will involve a duty for the treasury to share departmental spending plans with the Office for Budget Responsibility. The chancellor confirmed that the budget and spending review will also set out the measures to deliver Labour’s main goal, economic growth.