Up to £19bn of the shortfall Rachel Reeves says she inherited will still be there in 2029-2030 unless she raises taxes or cuts spending. That was the warning the Resolution Foundation gave in a report published ahead of the chancellor’s budget on 30 October 2024, as the Guardian reported on 11 October.
The think tank called the outlook for the public finances “truly dire”. Even if Reeves loosened a self-imposed debt rule to make room for infrastructure spending, it said, she would still face hard choices on the day.
Where the £22bn came from
After Labour’s landslide win in July, Reeves published Treasury analysis that found a £22bn overspend in the current financial year. She said the Conservatives had covered it up. The Tories angrily disputed the analysis. The list covered a soaring bill for asylum claims and illegal immigration, plus spending on the NHS, the war in Ukraine, and the upkeep of roads and railways.
Almost half of the gap, though, traced back to Labour’s own decision to agree above-inflation pay deals for public sector workers.
The Resolution Foundation gave the government partial vindication. The “broad scale” of the spending pressures left behind was already showing up, it said, in the official monthly snapshots of the public finances from the Office for National Statistics.
Rules and tax promises
Reeves is understood to be focused on holding tightly to her second fiscal rule, which requires day-to-day spending to be matched by tax receipts. That sits behind Labour’s warnings of “painful” changes to tax, spending and welfare.
Before the election, Labour set out £9bn of tax rises. The Resolution Foundation said that would have to grow to about £20bn to keep spending at the level needed for Keir Starmer’s promise of an “end to austerity”. The Institute for Fiscal Studies went further earlier that week, putting the requirement at as much as £25bn. It also noted that Labour had narrowed its own options by promising not to raise income tax, national insurance or VAT.
The Guardian also revealed that the Treasury was scrambling to find money elsewhere, but its plans risked unravelling amid questions over what large changes to certain wealth taxes would do.
James Smith, the foundation’s research director, said the strain showed in court backlogs, overcrowded prisons and rundown local services, and that £20bn of extra spending would be needed to reverse austerity. “Tax rises on that scale would doubtless make for hostile headlines but are actually par for the course at post-election budgets,” he said.
A Treasury spokesperson said there would be “no return to austerity”. The department stood by the manifesto pledge to protect working people, meaning no changes to national insurance, the basic, higher and additional rates of income tax, or VAT.
