Chancellor Rachel Reeves’ first announcement on entering 11 Downing Street was the commissioning of a ‘spending inheritance’ review from the Treasury. Her decision to do so was questioned by the opposition (Conservatives), among others, who argued that the state of public finances had been made clear in the report from the Office of Budget Responsibility (OBR) in March. However, the OBR’s grim outlook was studiously ignored during the election campaign by both main parties, prompting the Institute for Fiscal Studies to complain of “a conspiracy of silence”.

State of government finances

Post-election, the new ministers were told to ‘bring out your dead’ – pull together their departments’ financial problems. The result was a steady flow of dire warnings on prisons, the NHS, universities, and more. This was followed by a welter of gloomy reports from the National Audit Office on 23 July, publication of which had been delayed by the election.

The fiscal black hole

Finally, on 29 July, Rachel Reeves bundled the bad news inside her Treasury-commissioned review and broke the IFS’s conspiracy of silence. In her words, “There were things that I did not know”, which in total represented a projected overspend of £22 billion in the current financial year. Two immediate actions she announced in response were to:

• scrap the winter fuel allowance, other than for those on means-tested benefits; and
• abandon the introduction of new capped social care funding rules in England, which had been due to start in October 2025.

Autumn Budget

Ms Reeves also revealed that her Autumn Budget would be on 30 October, later than had originally been expected. Her July statement made clear that there would be action on tax to fill the £22bn ‘black hole’, but reiterated Labour’s manifesto pledge that there would be no increases in national insurance, the basic, higher, or additional rates of income tax, or VAT. That points to capital gains tax, inheritance tax and tax reliefs as possible revenue-raising targets in the autumn.

Take control of your finances

If you are considering any financial planning in the near term – perhaps pension contributions or gifts to grandchildren – talk to us about the wisdom (or otherwise) of acting before 30 October.

Disclaimer

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.