Coffee House Shots
How will Labour fill the surprise £20bn ‘black hole’?
The Spectator magazine is home to wonderful writing, insightful analysis, and unrivaled books and arts reviews. Subscribe today for just £12 and receive a 12-week subscription in print and online, along with the £320 John Lewis or Waitrose voucher. Go to spectator.co.uk/voucher. Hello and welcome to Coffee House Shots, Spectators, sometimes more than daily politics forecast. I'm Oscar Edmonton and I'm joined by Katie Bowles and Kate Andrews. So the Chancellor has today been providing some covering fire for a raft of pretty unpopular policies, including changes to the Winterview Allowance and cancellations to various building projects. She gave a pretty damning statement in the Commons earlier this afternoon on the economic situation that Labour have inherited from the Tories and we can hear a clip here. It means, Mr Speaker, that we have inherited a projected overspend of 22 billion pounds, a 22 billion pound hole in the public fire analysis now, not in the future, but now. 22 billion pounds are spending this year that was covered up by the party opposite. If left unaddressed, it would mean a 25% increase in the budget deficit this year. So I will today set out the necessary and urgent work that I have already done to reduce that pressure on the public finances by 5.5 billion pounds this year and over 8 billion pounds next year. Kate, can you take us through some of the kind of top line announcements today? So we were expecting some spending cuts and Rachel Reeves certainly delivered as she scrapped through a wand scheme. There's going to be a review of railed projects, which she says is currently in a deficit of a billion pounds. This is going to include discarding the restoring our railways program, but the big announcement, the surprise announcement, was the decision to withdraw the winter fuel allowance for pensioners that are not currently in receipt of a pension credit or other means tested benefits. This is an expected saving of 1.5 billion pounds, which is only taking her some way to the 20 billion pound fiscal black hole that the chancellor says has been created due to a Tory cover up. I think what's very notable is that Reeves has decided to try to extend the Tory austerity line into what Labor is about to do. So they are addressing shortcomings in public spending by cutting other parts of public spending. And for Reeves, it's very important that the message is this is because of Tory failure. So then the big question is, is this because of huge mistakes made by the Tories? And is this a surprise? And I do think we should break down those questions because I think they're two separate questions. There's absolutely no doubt that the Tories were coming up really close to their fiscal rules in the past few budgets that they presented, pass fiscal statements, Chancellor Jeremy Hunt and Rishi Seneca's Prime Minister really wanted to deliver on tax cuts. And in order to do that, they stuck within their fiscal rules, but they came much closer than practically any other chancellor, certainly over the past 15 years. And in addition to that, they basically said, we're going to cut spending in the next parliament. And that's how we're going to pay for tax cuts now. Now, you can say that's not very responsible. You can say that was never going to happen. The Tories were never really going to cut spending. Labor is not really going to cut spending. Certainly a hospital passed in this government to figure out how you're going to make the numbers add up. But to call it a surprise, I think is where this is really being pushed and where you would probably see a lot more pushback if the Tories currently had their act together and were sorting out their leader at a much faster pace. So about half of the money, a big chunk of this 20 billion pound black hole is what Reeve says is because the Tories improperly account for increases in public sector pay. And that's because the independent pay bodies have come back and said, actually, you know, this number is going to be well above inflation around 5.5% now for teachers and NHS staff. If you wanted to live around that, that's billions pounds more than had been forecast and budgeted by the Tories. Now, look, you can certainly say that's your priority. As Rachel Reese has done, you can decide to press ahead with it as Rachel Reese has done. But that is ultimately a political choice. And it's one being made by this government, not the last government. And I think if we really break it down, a lot of what's being called to cover up is actually a fundamental political disagreement, perhaps part of the reasons Labour won this election as to where the money is flowing and what's being prioritized. And Labour making it very clear they don't think that the Tories were properly budgeting for investing in public services. They weren't giving inflation-based increases to departmental spending in a lot of areas, for example. But again, these are really important political disagreements to actually call it a cover up as a bit of a stretch. And I think the Institute for Fiscal Studies has been very good on this. Throughout the election, we knew that there were black holes and the public finances going into the next parliament. And Labour knew this, the Tories knew this, every political party knew this. Nobody wanted to talk about it. They were pushed on it, and nobody wanted to talk about it. I think it's very savvy of Reeves to try to turn this into of we're discovering so much. I thought her statement today was most powerful. I've ever seen her. I thought it was an incredibly well delivered statement, and I thought the Tories should be worried about it. But I think this fundamentally comes down to political disagreement rather than an actual unearthing of money that wasn't accounted for. I think there's a bit of both going on. As Kate says, "There are warnings from the IFS of a conspiracy of silence." It was quite clear that the Tories would have struggled to implement the spending cuts at the plan, let alone a Labour government. But no one really wants to talk about it during election campaign. I think where Rachel Reeves has some cover today is a few of the other things that her team says they've really have discovered since entering. So, for example, £6.4 billion overspend on asylum this year. That was the number that came up. Now, Paul Johnson of the IFS, who's been very critical, generally, of the fact Labour can't claim they couldn't see what was going on the books, said that was a huge number and does genuinely appear to have been unfunded. But then, of course, when you get to public sector pay, I think that is a choice, and it's a choice we probably thought Labour would take. So, I think the fact you now have also the OBR asking for an investigation or launching their own investigation into effectively the forecast for departmental expenditure limits of the back of the suggesting that there's potentially some wrongdoing does mean that I think Rachel Reeves has some quite respectable looking cover. Now, I think what's was looking at it, you know, I will listen to what some of these institutions say around and say, I am looking at this and know why. But when you have the OBR saying something, and you have the head of the IFS that has been critical saying she has a point on some of those things, at the very least, Rachel Reeves can say there were some unexpected things, which then means that she can advance this black-collar argument even though I completely agree with Kate that we all were talking about how they'd seek a doctor's mandate during the election campaign, and it really couldn't hold. But it seems as though they have found in the few weeks in centering government a few things where it wasn't quite as public, which then gives you space to probably over egg the other things. But Kate, on the other side of this, we've had big concessions for junior doctors, for example, with a 20 odd percent pay increase over the next few years. How do they reconcile those two things? So I think Ross Clark on Coffee House makes an excellent point that when you have a chancellor who in the same day is approving a 22 percent pay raise for junior doctors over the next two years, and also saying that she is genuinely shocked to find the public finances in the state they're in, something doesn't quite add up. And what doesn't add up, you know, you could spin it positively for labor and say what doesn't add up is, you know, she's clearly able to handle this. She's perhaps not as shocked because she's completely in control and she's pretty confident that she can find the money and all the numbers are going to pan out. But I think where this does get trickier is depending on what else they want to cut and what taxes they might want to raise on the budget on October 30th, there will be people saying, "Well, look, if you're going to keep raising tax and you're going to give the junior doctors a pay raise, that pay raise may well be deserved." But how fast is the NHS waiting this coming down? If we're giving the public sector an above inflation pay raise, well, again, very potentially deserved. But are there targets that are going to be connected to this? Do we want to see increased productivity, which fell off a cliff in the public sector during the pandemic? None of those things have been discussed. And, you know, to Katie's point about the asylum money as well, I think this is a very gray area in which it is becoming quite clear that the Tories were perhaps not properly prepared for some of the issues that we're going to crop up this year around justice, around security, around immigration, that they perhaps slowly bald those figures quite significantly. And they just weren't properly preparing for the number of asylum seekers that might come to the UK in 2024. But again, that is slightly different than the narrative that Reeves had today, which was very accusatory, right? It was, they knew it and they covered it up. They didn't want to tell you the truth. I've unearthed it. I mean, the spectator keeps a weekly tracker of the number of asylum seekers coming to the UK. Very often, there's a reason these things are forecast, right? And nobody has a crystal ball. Sometimes these things go off track. It happens in plenty of departments. And, you know, we can sit here and say, gosh, I wish they were more efficient. I wish they, I wish they got their numbers correct. And I do wish that. And I hope that, you know, whoever is in charge is better at managing that. But again, it's a very vague area of actually accusing other people overspending and, and trying to cover it up. That is the narrative Reeves wants. And there is scope for the Tories to push back on that. I just don't think they have the political leverage at the moment. And I think one of those reasons is, is their own fault in a way, because they have decided to have a very extended leadership contest. And, you know, you could see Jeremy Hunt fuming across from the chancellor today because these are his budgets that she's talking about. He clearly disagrees. But I thought she did a very compelling job of crafting a narrative. And it is a tough one for the Tories to push back on. And Katie, what have been some of the early reactions to these measures and this rhetoric in Westminster and beyond? Well, in a way, it's quite predictable. I mean, the Tories are a ghast, labor, a very happy and keep pushing it. And there was definitely a big element of political theater today. And I think what is going to be more interesting is in a way, because the Tories have chosen to have an endless, summer, autumn leadership contest. The main opposition probably isn't going to come from the Tory benches. I think had the media cover this, it's going to be quite telling, because Rachel Reeves has decided today, this is obviously only the first part of the hard medicine. The first part is, you know, immediate savings and cuts and axing the winter fuel allowance for any of those who are not on pension credit. You've already had charities come out, AGK and others and criticise it. Martin Lewis, the financial money expert who often is the one criticising the Tories, now criticising the Labour government, saying it's a blunt instrument, it's going to mean that lots of people who actually do need this, perhaps some who are not registered for pension credit, but are eligible and others, are now going to potentially be facing pension poverty of some type by having this go away. And then I think you could see in the press conference where the Daily Mail and others posing, is it really appropriate to cut off money going to pensioners when you can find a 22% raise for junior doctors. And I think you could start to see, you know, there has been a honeymoon period for the Labour government, which is huge victory for Keir Starmer. He's got quite lucky in terms of these foreign stage events and so forth. I think we're going to start to get a bit of the rub, because ultimately lots of parts of the right ring press did, you know, not the Daily Mail and all the slavery, they didn't. But there's been a sense of, you know, new government, what have they got to say? And I think that the direction rates are going on, which I think you're going to get more in the tax rises, such as today when she was asked what cancers are working person, because they keep saying taxes and working people they don't want to go up. But clearly, taxes are going to go up in the autumn, as you know, someone who has an income through going to work. So you combine that with the rate on pensioners today, the fact that that social care cap, the do not cap, for example, that's another thing that's been asked. And I think that you're moving to a situation whereby the asset rich, which tends to, of course, be the elderly, particularly, are going to be those who are most penalised or targeted by a Labour government, whereby younger professionals, particularly public sector workers, do a bit better. Now, this was quite predictable, if you think about Labour's values, but also who their core audience is. But I think now the penny is being to drop in the sense that when you're having lots of warm statements, or even now, you know, so many things are going to review, if Labour doesn't want to make a decision, you are avoiding the difficult choices. But the difficult choices are coming, rate your users leaning into that. And I think that means that there are going to be some losers from the direction that the Labour government is taking. And they're really a group that, if you think about recent policy choices over the past 14 years, have tended to have the governing party at the time the Conservatives be more in their interests. And I think that's going to be, obviously, a hard reality for some to adjust to. Well, thank you, Katie. Thank you, Kate. And thank you very much for listening. [Music]