Chancellor’s speech paving the way to a potentially difficult Autumn budget
The Chancellor of the Exchequer, Rachel Reeves, recently addressed the House of Commons to detail the findings of a Treasury spending audit. She had hinted at these findings in earlier statements about public spending assessments.
According to the Chancellor, the audit uncovered £22 billion in unfunded pledges inherited from the previous administration. These include commitments to the Rwanda scheme, the Advanced British Standard, and the New Hospital Programme. Additionally, shortfalls were identified due to not increasing Departmental budgets to cover public sector pay settlements.
To start addressing the overspend, the Chancellor announced savings of £5.5 billion for this year, with an additional £8.1 billion in savings planned for next year. These measures include:
- Cutting winter fuel payments to only those who receive other State support. (Note that winter fuel payments are devolved in Scotland and Northern Ireland.)
- Scrapping the Rwanda migration partnership and retrospective application of the Illegal Migration Act.
- Cancelling the Investment Opportunity Fund and other small projects.
- Next year, cancelling the Advanced British Standard and unaffordable road and railway schemes.
- Reviewing the New Hospital Programme.
The Chancellor also confirmed that the Independent Pay Review Body’s recommendations for pay increases for public sector workers have been accepted, with an average uplift of 5.5%.
New plans for Spending Reviews were outlined, to be set every two years but covering a three-year period, allowing for a one-year overlap with the previous Spending Review. This aims for a more cohesive approach to public finance.
The Chancellor committed to continuing the practice of a single major fiscal event per year, typically in the autumn, covering all significant tax and spending announcements. Any spring Statement would respond to the second forecast by the Office for Budget Responsibility.
As part of her speech, the Chancellor outlined tax plans to be confirmed in the Budget scheduled for 30 October. These include:
- Ending VAT tax breaks for private schools from 1 January 2025.
- Replacing the non-domicile regime with a new residence-based regime, a plan already set by the previous government.
- Extending the Energy Profits Levy for one year to 31 March 2030, tightening investment allowances, and increasing the levy rate to 38% (from 35%) from 1 November 2024.
- Closing the carried-interest loophole used by private equity fund managers to reduce their tax.
These measures align with the Labour Party manifesto, so there are no major surprises.
It’s clear that the £22 billion shortfall in public spending won’t be fully covered by the announced saving measures. More changes could be on the horizon in the October Budget. GET IN TOUCH WITH OUR WIMBLEDON ACCOUNTANTS to stay updated on how these changes might affect you.
The Chancellor might be delivering the difficult news now, following the government change, and could save some positive news for the upcoming budget. We’ll keep you informed on all developments. If you have concerns about how these measures may impact you, please GET IN TOUCH WITH OUR WIMBLEDON ACCOUNTANTS, and we will be happy to assist you.
See: Government Speech