Black hole in UK’s public finances equivalent to Tory’s pre-election tax cuts

The multi-billion black hole in the UK’s public finances identified by chancellor Rachel Reeves is equivalent to the Conservative Party’s pre-election National Insurance cuts, the director of the Institute for Fiscal Studies has said.

Former chancellor Jeremy Hunt cut National Insurance by 2p in the last spring budget before the election, after making the exact same cut in the autumn statement last year.

The combined cuts were expected to save the average earner £900 a year.

At the time, Hunt argued that it would make the tax system fairer and help revive the economy, but he stayed silent on what the cost to the public’s finances would be.

Speaking to BBC Breakfast, Paul Johnson, the director of the Institute for Fiscal Studies, said it was “striking” that the £20 billion “black hole” is of the same scale as the tax cuts.

He said: “It is very striking that if this problem is about £20 billion big that is exactly the scale of the National Insurance cuts implemented by Jeremy Hunt just before the election.

“Now, if those cuts were implemented in the knowledge that there was this kind of hole that is not good policy to put it mildly.”

OBR review

The UK’s economic watchdog has announced a review into how the former government prepared its forecasting for the spring budget, as it raised concerns over the “transparency and credibility” of spending plans.

A letter published by the Office for Budget Responsibility (OBR) followed the Chancellor saying she had identified £22 billion of overspending this financial year.

This includes unfunded spending on the asylum system and transport which she said the OBR did not know about.

Richard Hughes, chairman of the OBR, confirmed that it was only made aware of the extent of pressures on departmental budgets after meeting with the Treasury last week.

“The Treasury document also sets out its plans for further managing down these pressures over the remainder of the financial year,” he said.

“If a significant fraction of these pressures is ultimately accommodated through higher DEL (department expenditure limits) spending in 2024-25, this would constitute one of the largest year-ahead overspends against DEL forecasts outside of the pandemic years.”

Jack Peat

Jack is a business and economics journalist and the founder of The London Economic (TLE). He has contributed articles to VICE, Huffington Post and Independent and is a published author. Jack read History at the University of Wales, Bangor and has a Masters in Journalism from the University of Newcastle-upon-Tyne.