Chancellor Rachel Reeves pledges to 'fix' economy - as expert says 'black hole' matches Tory tax cuts

Paul Johnson of the Institute for Fiscal Studies says the £20bn "black hole" reported to exist in the public finances roughly equates to the cuts to National Insurance made by the Conservatives in the run-up to the election.

Tim Baker
Political reporter
Friday 26 July 2024 

Chancellor Rachel Reeves says she wants to 'fix' the black hole. Pic: PA


Chancellor Rachel Reeves has promised to "fix" the "mess" the Conservative government left in the economy, amid reports of a £20bn "black hole" in the public finances.

Ms Reeves, who is currently on a visit to the G20 in Brazil, told broadcasters she aimed to tell the world that the UK "is open for business" and the new government "want private investment into the UK economy".

The chancellor, who is set to deliver a speech on Monday about the state of the UK's finances, was also asked about reports of a £20bn "black hole" in the UK's economy.

"I have been honest during the election campaign and in the last three weeks about the scale of the inheritance that this government would have to pick up," she said.

"The Conservatives have created this mess. But let me be very clear. I will fix it."

Meanwhile, Paul Johnson, the head of the independent Institute for Fiscal Studies (IFS), told Sky News that the £20bn gap was "almost exactly the cost of the National Insurance cuts that Jeremy Hunt introduced this year".

There has been speculation Ms Reeves could scale back spending or implement tax rises in this autumn's budget.

Mr Johnson said: "Reversing [the previous cuts] and getting back to where we were last autumn in National Insurance would actually deal with a large part of the problem.

"It looks like Labour have ruled that out.

"That leaves them with much more difficult, sorts of tax changes, quite technical changes to capital gains tax - that perhaps needs to happen to be fair - and to inheritance tax."

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However, Mr Johnson threw some cold water on the new government's pronouncements that it did not know how bad the books were prior to being elected.

He said: "I think that at a high level, the new government was well aware they were coming in facing a really difficult position in terms of the scale of problems facing the public services."

"But there may have been some specifics they did not know about.

"There is no doubt that having taken over at the Ministry of Justice and the Home Office and the Department of Education and so on, they will have seen some things that they didn't know, and it may well be that things are even worse than they imagined.

"But there's no question that they knew that things were going to be difficult."

Shadow Chancellor Jeremy Hunt branded Ms Reeves claims about finding the economy in a worse state than expected "nothing but a fabrication".

£The reality is she does not want to take the difficult decisions on pay, productivity or welfare reform that would have meant we could live within our means and is laying the ground for tax rises,£ he added.