Sir Keir Starmer has blamed the Conservatives for leaving a “£22bn black hole” in the public finances during Prime Minister’s Questions.
Government ministers have repeatedly used the figure to justify the decision to cut the winter fuel payment, while the Labour leader has also warned that October’s Budget will be “painful”.
But economists say the state of the public finances should not have come as a complete surprise to the Labour government, arguing some of the pressures should have been anticipated.
Where does the £22bn claim come from?
The £21.9bn figure was in an audit published by the Treasury at the end of July – just a few weeks after Labour came to power.
The document looked at areas of public spending which are set to go over budget this year, including:
- Public sector pay rises
- Overspending on certain projects, such as supporting the asylum system
- Unforeseen costs, such as inflation being higher than expected
- Military assistance to Ukraine
To put the figure into context, in the Spring Budget it was expected that total public spending this year would be £1,226bn. The £22bn is a small proportion of that.
But Gemma Tetlow from the Institute for Government think tank told BBC More or Less: “looking back at history and the amount that the government tends to overspend its budgets in previous years, £22bn would be quite a large number”.
To cover some of the shortfall, Chancellor Rachel Reeves made several announcements:
- Ending winter fuel payments for those not receiving pension credit
- Cancelling infrastructure projects, such as the road tunnel near Stonehenge
- Scrapping previous government measures, such as the planned cap on social care charges from October 2025.
Was the government aware of the overspend?
It is true that some aspects of spending have come as a surprise.
According to the Institute for Fiscal Studies (IFS) – an independent think tank – Ms Reeves was right to say that nearly all the estimated £6.4bn cost of supporting the asylum system was unfunded, for example.
On 29 July, the government’s own public finance watchdog – the Office for Budget Responsibility – wrote that it had not been made aware of the extent of overspends. It is now carrying out an investigation and will report back before October’s Budget.
But while Labour can credibly claim it was not aware of all areas of overspending, certain things were known.
For example, pay review bodies were likely to recommend a raise bigger than the 2% initially budgeted by the last government in order to retain teachers, nurses and other public sector workers.
It is a point made by IFS director, Paul Johnson: “The numbers may be a little bit worse than they thought at the time, and I think there were some things that were hidden from view, but the overall picture over the next four or five years is very, very similar to what we knew before the election.”
What do the Conservatives say about the claim?
Jeremy Hunt – the last Conservative chancellor – said the £22bn gap was “spurious” and that the public finances were not nearly as bad as Ms Reeves had tried to present them. He accused her of a “shameless attempt to lay the grounds for tax rises”.
However, in a leaked letter, Britain’s most senior civil servant, Simon Case, suggested that the previous government’s failure to hold a spending review in its final years in office contributed to uncertainty over the public finances.
Responding to the letter on X, Mr Hunt said it would be a breach of the Civil Service Code if officials had knowingly signed off incorrect public finance estimates, irrespective of the last government’s decision to hold a spending review or not – and if this had not been the case, “then Labour’s claim of a £22bn ‘black hole’ is exposed as bogus”.
Is it really a ‘black hole’?
The trouble with terms such as “black hole” is they suggest the government’s hand was forced. Ms Reeves told the Commons: “The scale of the situation we are dealing with means incredibly tough choices.”
It is important to remember that choices were indeed made. The government decided to do things like giving winter fuel payment only to those receiving pension credit, but it could have taken other decisions.
For example, it is basing the decisions on needing to meet the fiscal rules that it imposed on itself, but it could have changed the rules. Or it could have decided to spend less on something else.
The Leader of the House of Commons, Lucy Powell, told BBC News on 1 September: “If we hadn’t taken that action we would have seen a run on the pound, we would have seen the economy crashing.”
It is always hard to predict at what point markets would lose confidence in a government, as happened after former PM Liz Truss’s mini-budget, but there is little sign that it would have happened if the government had not taken its immediate action.
Nina Skero, chief executive of the Centre for Economics and Business Research told BBC Verify: “It is hard to find any evidence to support the claim that there is an imminent risk of a run on the pound.”
She added that the size of any hole in the public finances is “highly speculative, subject to forecasts, and there are no alarm bells going off at the moment among investors looking at the UK”.
Source: BBC World