Reeves’s long-term spending figures almost as unrealistic as Tories’ were, IFS says – UK politics live

John Swinney, the first minister, has urged the Treasury to fully compensate the Scottish government for the expected loss of £500m to its budget from the hike in national insurance (NI) payments by employers.

Rachel Reeves, the Chancellor, appears to have been wrongfooted by the impact her decision to increase NI rates for employers will have on the already stretched finances of Scotland’s public sector, which is larger than England’s.

The Scottish government estimates Scotland’s health service, schools, police, courts and other public services will have to spend £500m extra – money which will now flow to the HM Revenue and Customs in London.

Scotland’s public sector employs around 600,000 people, 22% of the national workforce, compared to 17% across the UK as a whole.

Swinney told Anas Sarwar, the Scottish Labour leader, during first minister’s questions he broadly welcomed Reeves’ budget. It adds £3.4bn to his spending next year, while the extra money this year will help the Scottish government meet the soaring costs of its public sector pay deals and inflation.

But the NI anomaly needed to be addressed, he added, before the Scottish budget is published on 4 December. He said:

There remains significant uncertainty about the impact of the increase in employers’ national insurance contributions on public spending in Scotland [and] whether our finances will be compensated in full for all that’s involved.

That of course is not an insignificant sum, it’s £500m.

Reeves was pressed about this on BBC Radio Scotland on Thursday morning, and appeared to suggest that no additional money would be provided. “We’ve given £3.4bn in the settlement to Scotland, which takes into account all of those pressures,” she said. “The challenge now for the SNP in Scotland is to use that money wisely.” (See 9.35am.)

However, other UK government sources have said extra money would be given to Scotland to cover those costs, but were not clear how much. Scottish ministers fear the Treasury will give them a flat rate population-based share of those extra NI receipts, without recognising Scotland’s larger public sector.

Keir Starmer ended his Q&A with health workers at at University Hospitals Coventry and Warwickshire by urging them to contribute to the public consultation on the future of the NHS. Being able to tell the government what they thought was a right, not a gift, he said.

After the election I stood outside Downing Street and said we’d be a government of service. And that means that we’re a government which is in your service.

So the opportunity to talk to us, that’s not a great gift that we’re giving you this morning. That’s actually your right. You have every right to tell me and Rachel [Reeves] what you think. You’ve every right to be heard on this.

Starmer also said, if people had any points they wanted to raise that they had not done already, they should do so via the members of his team there organising the event. He went on:

I’m one of these people that, on the train on the way home, ruminate about what people have said to me and think about it. So it really is impactful if you do that.

So you have the right to tell us what you think. You’ve got the right to put your fingerprints on the future of your country. Please exercise that right.

Back at the hospital event, Keir Starmer was asked about an NHS worker what Labour would do to promote more collaborative working in the health service.

Starmer said it was important to create an environment where staff felt valued. He went on:

But I also want to be honest with you; we are going to be asking more of you.

There’s no point me standing here and saying, your workload will go down. The whole point is, people are living longer. They’ve got more conditions. What the NHS is facing now is different to what it was facing in the post war period. Your workload is likely to go up, not down.

Now, in a way, that is a good thing, because we’re living longer. We shouldn’t see that as a bad thing, but it does make your life more complicated.

So are we making a bigger ask of you? Yes. Are we going to help you? Therefore, yes.

As examples of what government might do to help, Starmer said it would make sure they had the right number of trained staff, and that AI and technology was used properly. He said patients were fed up of the fact that it is not always easy for doctors to access their notes.

There would also be more focus on preventative health, he said. He went on:

So you’re doing more, but actually the pressure will come off if we do it in the way that we need to do it.

Ofcom said it has imposed a £100,000 fine on GB News for “breaking due impartiality rules” following a question and answer-style debate with former prime minister Rishi Sunak earlier this year, PA Media reports. PA says:

The media watchdog began an investigation into GB News three days after the airing of a programme on February 12 titled People’s Forum: The prime minister, which saw Sunak answer questions from a studio audience and a presenter.

GB News chief executive Angelos Frangopoulos said the channel is challenging the “unnecessary, unfair and unlawful” Ofcom ruling in the courts.

In a statement, Ofcom said Sunak “had a mostly uncontested platform to promote the policies and performance of his government in a period preceding a UK general election, in breach of Rules 5.11 and 5.12 of the Broadcasting Code”.

“Given the seriousness and repeated nature of this breach, Ofcom has imposed a financial penalty of £100,000 on GB News Limited,” it added.

“We have also directed GB News to broadcast a statement of our findings against it, on a date and in a form determined by us.

“GB News is challenging our original breach decision in this case by judicial review, which we are defending. Ofcom will not enforce this sanction decision until those proceedings are concluded.”

The rules state that “due impartiality must be preserved on matters of major political and industrial controversy” and “an appropriately wide range of significant views” should be included.

And here are some more lines from Paul Johnson’s opening briefing at the IFS press conference this morning.

• Johnson, director of the IFS, said the government needed a “more coherent tax strategy” to promote growth. He explained:

As for the rest of the tax changes [after the national insurance rise], I will only say that the lack of any apparent strategy or appetite for reform is deeply disappointing. Unlike the coalition’s corporate tax “road map” the one published yesterday is more of a parking space – an ambition not to take a big journey in any direction. That the chancellor decided to increase stamp duty, if only on second properties, is most disappointing of all. It again reduces transactions, increases again the bias in favour of owner occupation, and against renting, and at least part of the consequence will be to reduce the supply of rental housing and so increase rents …

If this government really wants to focus on growth, then part of the plan needs to be a much more coherent tax strategy than we saw yesterday. Let’s hope for better next year.

Also disappointing is some of the presentation – even after the “conspiracy of silence” entered into during the election campaign. How the budget red book can include the sentence “it [the government] is not increasing the basic, higher or additional rates of income tax, National Insurance contributions or VAT” is beyond me. The continued pretence that these changes will not affect working people risks further undermining trust.

Johnson may have drafted this statement before Rachel Reeves’s interview round this morning, where she did concede the national insurance rise would affect workers. (See 8.02am.)

It is also worth noting that, net, this increase will not actually get the Treasury anything like the £25bn stated on the scorecard. As the OBR note, it will result in lower wages, reducing the amount raised from employer NI and reducing employee NI and income tax revenues. That takes the net revenue down to some £16 billion. On top of that there will be an effective £6bn of compensation for public sector employers.

[Reeves] chose to increase borrowing in order to increase investment spending – or at least to stop it falling as a fraction of national income. Given that the growth benefits of this take some time to arrive, this is a courageous move and a welcome focus on the long term. This was the right thing to do.

Unusually the NHS is not scooping the pool. It is getting about the average spending increase. Equally unusually local government is doing rather well, as is the justice department, reflecting the severe pressures each is facing.

The increases in spending look big relative to the previous government’s plans, but that is in large part because their plans were unrealistic. Despite the apparent scale of the increases, this is not going to feel like Christmas has come for the public realm. Ms Reeves may be overegging the £22 billion black hole, but she is not wrong to stress that she got a hospital pass on the public finances.

Rachel Reeves was faced with a genuinely difficult inheritance and the last government must take a lot of the responsibility. Its spending plans for this year and for the future lacked credibility. To cut £20 billion from employee national insurance last year in the face of known fiscal pressures was not responsible.

One of the great traditions of a British budget is that, whichever party is in power, and whoever is chancellor, the Institute for Fiscal Studies always comes out the next day and picks holes in it. It has been doing it again this morning.

The IFS is not universally critical, it is more positive about some budgets than others, and overall it is more complimentary about what Rachel Reeves announced than it was about the efforts from some of her predecessors. But it is still finding fault, and in his opening presentation at the IFS press conference this morning Paul Johnson, the IFS director, said that Reeves’s longterm spending plans were almost as unrealistically low as Jeremy Hunt’s. He explained:

Much the most striking aspect of the spending decisions is how incredibly front loaded the additional spending is. Day-to-day public service spending, after inflation and the additional cost to public sector employers of rising NI, is set to rise by 4.3% this year and 2.6% next year, but then by just 1.3% each year thereafter …

I am willing to bet a substantial sum that day-to-day public service spending will in fact increase more quickly than supposedly planned after next year. 1.3% a year overall would almost certainly mean real terms cuts for some departments. It would be odd to increase spending rapidly only to start cutting back again in subsequent years.

I’m afraid this looks like the same silly games playing as we got used to with the last lot. Pencil in implausibly low spending increases for the future in order to make the fiscal arithmetic balance. It sounds like it was hard enough to get agreement from departmental ministers to relatively generous settlements in the short term. When it comes to settling with departments for the period after 2025-26 keeping within that 1.3% envelope will be extremely challenging. To put it mildly ….

[Reeves] is meeting her borrowing target only by repeating the same silly manoeuvres as her predecessors used to make it look as if the books will balance. Let’s pretend we’ll increase fuel duties next time, but not do it this year. Let’s pretend that we’ll really rein in spending in a couple of years after splurging this year. That’s not going to happen. The spending plans will not survive contact with her cabinet colleagues.

I will post more from the briefing soon.

The Institute for Fiscal Studies’ briefing on the budget is underway.

One point it is making is that the rise in employers’ national insurance will, proportionally, have the biggest impact on firms employing people on low wages.

In July Rachel Reeves published a document claiming there was a £22bn black hole in the Tories’ spending plans, which Labour inherited, for 2024-25. The figure was widely quoted, although when the Financial Times tried to use a freedom of information request to get details of how the Treasury arrived at the £22bn figure, the Treasury would not release the information.

Yesterday the Office for Budget Responsibility published a report saying spending pressures were not fully disclosed by the last goverment. But it did not endorse the £22bn figure, and it implied that, if there was a black hole, it was more like £9.5bn.

This morning, in her interview on the Today programme, Reeves, rather ingeniously, suggested there was an alternative way of arguing that the Tories left a £22bn black hole. She did not withdraw or disown the Treasury calculation released in July. But when the presenter, Nick Robinson, put it to her that she should have known during the election campaign that the Tory spending plans were unrealistic, because that is what all the experts were saying (see 8.27am), she replied:

I think this is really important. Nobody knew about this in-year overspend.

It’s why, when we get the monthly borrowing numbers, in the six months of this year, they are already running £11bn pounds higher. Times that by two to take us to the full year, that’s £22bn pounds more than the OBR forecast in March because the previous government withheld that information.

Labour has got a history of redefining contested “black hole” figures. In May Labour claimed that there was a £71bn annual black hole in Tory spending plans. The figure was dismissed by most commentators as a wild exaggeration, not least because it assumed that the Tories would abolish national insurance in its entirety without replacing it with an alternative source of income (something that Jeremy Hunt had floated as a very long-term aspiration, but that was not widely seen as a realistic aim). Later, during the proper election campaign, Labour produced a more realistic assessment of the black hole in Tory plans, focusing on what the five-year figure would be, not the annual figure. Conveniently, this also came to £71bn.

The Resolution Foundation thinktank has this morning published a 61-page analysis of the budget.

Like the IFS (see 8.50am), the Resolution Foundation says this parliament is set to be the second worst since the war for rising living standards. It explains:

Indeed, the outlook for living standards looks weaker than the OBR projected in March 2024, with real household disposable income (RHDI) per person set to increase slightly (up 1.5 per cent) between 2024 and 2025, compared to a projected increase of 1.7 per cent in the March 2024 forecast. Notably, the living standards outlook later in the forecast period has been revised down more significantly … In March, the OBR projected RHDI per person to grow by 1.3 per cent between 2027 and 2028 – but in its latest set of forecasts, the OBR projected RHDI per person to grow by just 0.4 per cent during this period (and then to grow by only 0.7 per cent between 2028 and 2029).

Some might view any income growth as a cause for celebration, since the last parliament remains the worst since at least the 1950s for living standards improvements. As figure 30 [see below] shows, RHDI per person rose by an average of just 0.3 per cent a year during the 2019-2024 parliament. But the forecast for this parliament is not much better: RHDI is set to rise by 0.5 per cent a year across this parliament, equating to a total income gain of £700 per person between the 2024 and 2029 elections (in 2024-25 prices). This projected income growth is a far cry from the living standards increases that were experienced during the last Labour government, during which even the worst term for living standards (the 2005-2010 parliament) recorded 0.8 per cent annual growth. When we look across the entire period of the last Labour government (between 1997-2010), RHDI rose by a relatively strong 1.9 per cent on an annualised basis – equating to an overall income boost of £5,400 per person – even though this period of government included the financial crisis.

That said, this historically tepid projected real income growth over the course of the parliament needs to be seen in the broader context. Given its inheritance, the government presumably felt that increasing taxes to better fund day-to-day public services was the priority, even if that put downward pressure on incomes directly or, in the case of the employer NI rise, indirectly through the second-order earnings and employment effects. In this respect, the government has clearly gambled on the hope that the public will accept limited income growth over the parliament in exchange for improvements to public services.

And here is the figure 30 chart.

Earlier this week Jeremy Hunt, the shadow chancellor, suggested that the Office for Budget Responsibility was about to publish a report biased in favour of Labour. Referring to the news that the OBR was going to release the outcome of its review into Rachel Reeves’s claim that the last government had an undisclosed £22bn black hole in its spending plans, Hunt said:

Straying into political territory and failing to follow due process like this demeans it and also is deeply problematic for perceptions of the impartiality of the civil service.

But when the report came out yesterday, although it said that the Treasury withheld information from the OBR about spending pressures in the accounts at the time of the spring budget, it did not endorse the Labour claim about Hunt leaving his successor a £22bn black hole.

Speaking on ITV’s Good Morning Britain today, Hunt said he was wrong to imply the OBR was going to be party political. He said:

I was worried about the process through which they compile their report, but I am happy to say that I was wrong.

I was worried if they would criticise the previous government, but there were no criticism of the previous government in their report.

The Conservatives claim the budget includes a series of broken promises by Labour – about not planning to raise taxes, about ruling out a national insurance increase, about the pre-election fiscal rules being non-negotiable – and in interviews this morning Jeremy Hunt, the shadow chancellor, restated these claims. The budget was “a bad day for trust in British politics”, he claimed. Labour say they haven’t broken promises, and that during the election the Tories were criticising them for things like not ruling out a rise in employers’ national insurance.

But Hunt also accused Rachel Reeves this morning of “taking the easy route” in her budget, instead of finding an alternative to higher taxes that could also lead to better public services.

Speaking on ITV’s Good Morning Britain, he said:

I would always welcome more money for the NHS and we all want it to get back on its feet.

But there are choices in how you decide to do that and [Reeves] took the easy route – which is to pick the pockets of businesses.

He said the Conservatives would have adopted a different approach. Speaking on Sky News, he said:

With an ageing population, with all the pressures of what [Russian president Vladimir] Putin is doing in Ukraine, how do you fund our public services without really damaging rises in taxation?

We would have made difficult decisions on welfare reform, on the public sector, and productivity.

If you cut the number of people claiming benefits to 2019 levels – in other words before the pandemic – that releases £34bn a year.

The government has chosen to do nothing on that and, as a result, the adult working-age benefit bill is going to be more than £100bn by this end of this period.

We would have taken that harder path, because we know that the result of higher taxes is lower growth, and that is bad for ordinary families.