(Bloomberg) — Chancellor of the Exchequer Rachel Reeves is facing growing concerns in the Cabinet over the scale of cuts she wants to help raise £40 billion ($52.3 billion) to put Britain’s public finances on stable footing.
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Reeves, who has said the new Labor government has inherited a £22 billion budget gap from the Conservatives, is determined to use her October 30 budget to give herself a cushion against her target of ensuring day-to-day spending is covered by tax revenues. , according to two people familiar with the matter. That means the chancellor is looking at decisions on taxes, spending and social savings to raise around £40 billion, the people said on condition of anonymity.
The plan has alarmed members of Keir Starmer’s senior ministerial team, with some saying they had had difficult conversations with Reeves and Treasury principal secretary Darren Jones over the one-year review of departmental spending that would be announced at the Budget. Several people told the Treasury Department that the cuts they had been asked for would not be feasible, people familiar with the matter said.
Starmer and Reeves discussed ministers’ concerns at the start of Tuesday’s Cabinet meeting, the people said.
Complaints have come from a wide range of ministers, not just those responsible for departments with the highest capital spending, the people said. Their concerns relate to the spending allocations for the 2025-2026 period, and how little time ministers have had to contribute to the spending review, they said.
A spokesperson said in an email that the Treasury Department does not comment on “speculation surrounding tax changes outside of tax events.” The £40 billion figure was first reported by the Financial Times on Tuesday.
The unrest underlines the difficult decisions Reeves faces in a budget widely seen as the moment that will shape the early years of Starmer’s government. She is expected to unveil a series of tax hikes and spending cuts to plug the black hole she says has been left by the Tories, and to relax her budget rules to borrow tens of billions to invest in Britain’s ailing infrastructure .
Reeves said in a New Statesman podcast last week that the £22 billion budget gap she inherited represented “recurring” and “sustained” spending pressures, and that there was a “big gap” that her budget needed to plug.
The chancellor was helped on Tuesday when official statistics showed inflation fell sharply to 1.7% last month. That’s because benefits are increased each April in line with the inflation rate last September – meaning she will have a lower-than-expected increase to factor into her calculations.
The key budget rule that Reeves is trying to meet – to have day-to-day government spending covered by tax revenue before the end of parliament – is a new rule adopted by the Starmer government. Reeves sees it as the most important target she has to hit and wants to give herself a buffer against hitting the target, according to the people familiar with her thinking.
Even during the election campaign, influential think tanks, including the Institute for Fiscal Studies, warned that the winner would face difficult choices in the autumn budget and spending review. Former Tory Chancellor of the Exchequer Jeremy Hunt left little budgetary room in his quest for tax cuts ahead of the vote, while his decision not to hold a spending review before the election meant the Tories did not have to show where cuts should take place.
That context meant ministers did not blame Reeves and Starmer when they raised the issue of cuts at Tuesday’s Cabinet meeting, people familiar with the conversation said. Both told ministers they appreciated the difficulty of the decisions, the people said.
Health Minister Wes Streeting said he was unhappy with the choices facing the government, although he focused his criticism on the Tories, the people said.
Privately, however, some ministers have expressed frustration with the way the Treasury is handling the spending review process.
The cabinet meeting debated, among other things, how the government should use the next phase of its spending review, covering the coming years, to implement public sector reforms. These changes, which are likely to require an increase in government spending later in Labor’s five-year term, would be essential to the government’s fortunes, according to people familiar with the talks.
The discussion included comments about how Britons’ interactions with the state do not match their experiences with the private sector and that people are tired of being taxed for outdated and dysfunctional services, the people said.
In a readout of the meeting, a Labor spokesperson said Reeves “briefed Cabinet on preparations for the budget and spending review, which she said is an opportunity to put the country on a firmer footing.” The chancellor also told ministers that the fiscal legacy “meant difficult decisions had to be made on spending, welfare and taxation.”
–With assistance from Ellen Milligan, Philip Aldrick and Robert Jameson.
(Updates with inflation in ninth paragraph.)
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