Rachel Reeves will ask departments to speed up their delivery of admin efficiencies and slash spending on consultants.
The chancellor is set to announce a series of “reforms bearing down on waste in the public sector” and launch the Office of Value for Money, a government agency that will “put an end to wasteful spending in government” in a speech later today.
The chancellor will say that the spending audit she ordered officials to carry out upon her arrival at the Treasury has led to the discovery of a £20bn black hole in government spending, in a speech in the House of Commons this afternoon.
Economic experts warned during the election that both the Labour and the Conservative parties were engaging in a “conspiracy of silence” over the difficult choices that an incoming government would face. The Institute for Fiscal Studies stating that Labour’s plan would leave a black hole of between £6bn and £16bn in department budgets.
Reeves will announce reforms to drive efficiency through government departments and arm's-length bodies, include an immediate end to non-essential spending on consultants, a “hastening” of admin efficiencies in departments and a sell-off of surplus public property, a Treasury press release trailing the speech said.
Labour’s manifesto included a pledge to halve consultancy spend and estimated that this would save £745m.
The Office of Value for Money, which will use pre-existing civil service resources, will provide “targeted scrutiny of public spending so that value for money governs every decision government makes", the Treasury said. It will immediately begin work on identifying and recommending savings for the current financial year and will also establish where targeted reforms of the system can ensure that poor value-for-money spending is “cut off before it begins”.
The plans for a value-for-money office were first unveiled by Reeves in February 2023 when she was shadow chancellor, but were not mentioned in Labour’s election manifesto.
The government is also set to confirm public sector pay rises for 2024-25 by tomorrow, when parliament breaks up for the summer. Reeves has hinted that public servants could get an above-inflation pay rise.
In her speech, Reeves will accuse the Conservative Party of “covering up” the reality of the state of public finances.
She is expected to say: "Before the election, I said we would face the worst inheritance since the Second World War. Taxes at a 70-year high. Debt through the roof. An economy only just coming out of recession. I knew all those things. I was honest about them during the election campaign and the difficult choices it meant.
“But upon my arrival at the Treasury three weeks ago, it became clear that there were things I did not know. Things that the party opposite covered up from the country.
“It is time to level with the public and tell them the truth. The previous government refused to take the difficult decisions. They covered up the true state of the public finances and then they ran away. I will never do that.
“The British people voted for change and we will deliver that change. I will restore economic stability. I will never stand by and let this happen again. We will fix the foundations of our economy, so we can rebuild Britain and make every part of our country better off.”
IFS director Paul Johnson had warned during the election that the “post-election routine of shock-and-horror at the state of the public finances will not cut it”.
“These challenges are already perfectly clear,” he said. “The books are open.”
This morning, Johnson pointed out that the £20bn hole could be filled “by reversing the National Insurance cuts Jeremy Hunt made in his last two budget statements”.
Reeves is not expected to announce any tax rises today to address the £20bn shortfall. Cabinet Office minister Pat McFadden told Times Radio: “Today is not a budget, people shouldn’t expect tax announcements today. We said a number of things about tax during the election, we said that we wouldn’t increase income tax rates, National Insurance rates, or VAT. Those things still hold.
“Today, what you will hear is how we are going to respond to that opening of the books. And I think what people should expect today is not tax measures but a chancellor that is prepared to take some very tough decisions on spending, to show that we put financial stability first and we take seriously that as the foundation for growing the economy.”
In her speech, Reeves is also expected to confirm that the she has commissioned an Office for Budget Responsibility forecast to coincide with a budget and spending review to be held later this year. She will also announce that she is committing the government to one major fiscal event per year to put an end to “surprise budgets”.
Earlier this month, the government introduced the budget responsibility bill in the King’s Speech. The bill will put into law that all significant fiscal announcements on tax or spending which are worth more than 1% of the UK’s GDP must be subject to scrutiny by the independent Office for Budget Responsibility. No.10 has said this will “ensure nobody can play fast and loose with the public finances ever again”, in reference to Liz Truss’s market-spooking “mini-budget”.